Q2 2024 Fund Performance: A Comprehensive Review of Market Trends and Investment Strategies

Artisan Small Cap Fund Q2 2024 Commentary

Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. Call 800.344.1770 for current to most recent month-end performance. In Q2, data pointed to solid US economic activity and a sturdy labor market while inflation moved slowly toward the Fed's 2% target. Recent indicators showed Q1 gross domestic product ('GDP') grew at an annualized rate of 1.6%. In a further sign of economic resilience, the labor market remained more robust than many expected, adding 272,000 new jobs in May versus the 190,000 consensus estimate. The unemployment rate has been at or below 4% for 25 consecutive months for the first time since the 1960s. Inflation has eased over the past year but remains elevated. The consumer price index ('CPI') was flat in May and up 3.3% from a year earlier. The latest core personal consumption expenditures ('PCE') price index reading was 2.6%, the lowest annual rate in three years. While both metrics show progress, they are still well above the Fed's target, and the Federal Open Market Committee ('FOMC') held rates steady in June. Should inflation continue to moderate, we can likely anticipate the FOMC's first rate cut will come later this year. However, the Fed is assessing data one month at a time, and any upward inflation surprise could push rate cuts further down the road. Inflation in Europe has displayed signs of stabilizing and is below levels in the US. The European Central Bank ('ECB') began hiking rates in August 2022, five months later than the Fed. Since then, both central banks have largely raised rates in tandem. However, in June, the ECB diverged from the Fed when it cut rates by 25bps to 3.75%. Global equity market results were mixed. Large caps furthered their advance as mega-cap technology platforms continued to dominate market returns. In June, Nvidia (NVDA) surpassed Microsoft (MSFT) to become the most valuable public company in the world before losing some steam at month's end. The Magnificent Seven (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla) provided a weighted average return of 17.4% in Q2. The Russell 1000® Index, excluding those seven companies, declined 1.2%. Outside of large caps, most parts of the US equity market declined. Both the Russell 2000® (RTY) and Russell Midcap® Indices fell by 3.3%. Also, while growth sizably outperformed value within large caps, this wasn't the case within mid and small caps. Outside of the US, the MSCI EAFE and MSCI ACWI ex USA Indices posted positive returns in local currency terms. However, the strengthening US dollar continued to be a headwind. Exhibit 1: Index Returns Our portfolio generated a negative absolute return and underperformed the Russell 2000® Growth Index in Q2. From a sector perspective, underperformance was driven by negative security selection, while allocation impacts were slightly positive. Negative security selection was driven by underperformance within industrials and health care. This was partially offset, however, by outperformance within consumer discretionary. The portfolio's underweight to financials, real estate and materials contributed to relative results. This was partially offset, however, by the underweight to consumer staples and communication services. Despite the challenging Q2, we feel pretty good about how the portfolio has performed over the first half of the year. Relative returns remain in line with the index over the YTD period, despite the large underperformance within information technology resulting from not owning two index constituents that have experienced one of the more unusual periods we have witnessed in our careers. Extremely strong returns by two sector constituents, Super Micro Computer (SMCI) and MicroStrategy (MSTR), contributed 257bps (58%) to the index's return. The companies ended the quarter with market capitalizations of $43.2 billion and $21.7 billion and have been reconstituted out of the Russell 2000® Index. Super Micro Computer manufactures server racks for central processing units and GPUs that have experienced an artificial intelligence-driven uptick in demand from its cloud and enterprise customers. This company has been on our radar for years, and we met with them in our Milwaukee offices in early 2023. However, we don't consider the stock investable given corporate governance issues. Regarding MicroStrategy, our decision to avoid this company comes down to a lack of conviction in its franchise characteristics. The stock has worked this year due to a rebound in the price of bitcoin. Since 2020, MicroStrategy has been focused on converting its cash and cash equivalent holdings, as well as issuing debt, to fund the purchase of bitcoin, which now makes up most of the company's value. Among our top detractors for the quarter were Lattice Semiconductor (LSCC) and Iovance Biotherapeutics (IOVA). Cyclical pressures continued to hurt Lattice's recent quarterly results, and shares struggled. We believe some of these headwinds are set to ease. Most semiconductor companies have been impacted by their customers' destocking elevated inventories in recent quarters, but this seems to be nearing completion. However, other factors, such as macro-related weakness in 5G wireless infrastructure investment, may take longer to turn. Lattice expects to return to growth in the second half of 2024, partly fueled by the company's steady flow of new product launches, which continues to drive market share gains. During the quarter, sentiment toward the stock further weakened due to the departure of Lattice's well-respected CEO. While we were disappointed to see him go, he's taking on an exciting turnaround challenge, and we believe the company's strategy and operations are on very strong footing. We remain invested ahead of what we view as a likely profit cycle acceleration in the year's second half. Iovance Biotherapeutics is a biotechnology company focused on innovating, developing and delivering novel polyclonal tumor- infiltrating lymphocyte ('TIL') cell therapies for cancer patients. The stock rallied significantly in Q1 after announcing that the FDA approved AMTAGVI™ (lifileucel) for advanced melanoma. Now that the scientific risk is behind the company, investor focus has shifted to the company's commercial execution, and shares experienced weakness after the company reported earnings results. It announced the enrollment of more than 100 patients for therapy; however, this was not enough to alleviate investor concerns about patient attrition. In our view, there is no issue with the efficacy of its life-saving treatment. Headwinds have been caused by challenges in ramping production, which is understandable in the early days. We view these concerns as overblown and remain invested. Among our top Q2 contributors were Twist Bioscience (TWST) and Guidewire (GWRE). Twist Bioscience is a life sciences company with a proprietary silicon- based platform for writing DNA. Synthetic biology is used by biotech companies looking to extend drug discovery and development capabilities as well as diagnostics companies developing methods of detecting diseases at earlier stages. Other applications include creating disease-resistant food crops and the creation of biofuels as alternatives to fossil fuels. Synthetic biology is a large and rapidly growing market, and we believe Twist is currently in the pole position. Shares outperformed after the company reported strong earnings results, including growth of 25% for revenues and 48% for orders. We added to the position. Guidewire is a market leader in next-generation software for the property and casualty (P&C) insurance industry. The company's software enhances modern underwriting and claims operations by supporting workflows, external collaboration and rule-based decision-making. It recently transitioned away from a licensed software business model to a subscription-based cloud service. We have seen these cloud subscription transitions before -- they involve sacrificing near-term profitability for higher and more predictable long-term cash flows. As companies emerge from these (often messy) transitions, their profit growth tends to accelerate. We believe Guidewire is at this inflection point. In an environment that has generally been challenging for software, the company posted strong earnings results, including annual recurring revenue growth of 15%, the signing of eight new cloud deals and an increase in forward guidance. During the quarter, we initiated new Garden SM positions in Insmed (INSM) and Vita Coco (COCO). Insmed is a commercial stage biotech company focused on serious pulmonary diseases. Its first commercial product, Arikayce, is an inhaled antibiotic for the treatment of lung disease in patients who haven't responded to conventional treatment. But the company also has a late-stage pipeline asset, Brensocatib, which treats bronchiectasis (a chronic, progressive inflammatory disease that causes permanent lung damage) and other neutrophil-mediated diseases. Over one million patients in the US, Europe and Japan have been diagnosed with bronchiectasis, and limited treatment options make this one of the biggest unmet medical needs within respiratory disease. Our research suggests that Brensocatib has multi-billion- dollar sales potential and may even be able to treat other serious respiratory illnesses. We decided to initiate a position following positive phase 3 clinical trial results. Vita Coco is the leading coconut water brand in the world. While this niche category has relatively low household penetration today, it is slowly growing as the product benefits from increased awareness, availability and acceptance as an alternative to sugary sports beverages. The company's supply chain is an important competitive differentiator. It has secured long-term supply agreements with a network of factories across six countries that process coconut flesh into food and other products, allowing Vita Coco to obtain their coconut water that typically would be disposed of as a wasted byproduct. We believe the company should be able to drive total category growth for coconut water and its supply advantage should allow it to maintain a high market share, offer attractive pricing and expand margins. Along with Twist Bioservices, notable adds in the quarter included Inspire Medical Systems (INSP). Inspire Medical Systems is the leader in Hypoglossal Nerve Stimulation ('HGNS') for treating obstructive sleep apnea ('OSA'). For patients with moderate or severe OSA, the company offers the only effective alternative to the standard of care, CPAP. It is the only US company with an approved HGNS device. Shares experienced a dramatic selloff after reporting Q1 US sales that were behind expectations. Furthermore, investor concerns about utilization within its centers providing Inspire therapy were amplified by the company's decision to stop disclosing center count in 2025. However, we thought the report had a lot to like, including increased top-line guidance for the year and expectations to reach profitability earlier than expected. We decided to use the weakness as an opportunity to build our position. We ended our investment campaigns in Bentley (BSY) and Etsy (ETSY) during the quarter. Bentley Systems is the leading provider of engineering software used to design roads, bridges, tunnels, rail systems and other public works. Construction is one of the economy's least digitized verticals, and our thesis was based on the view that there are significant opportunities for software to increase productivity within civil engineering projects. We also viewed the company as well positioned to support the infrastructure spending encouraged by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. After a successful multiyear investment campaign, we decided to exit the position due to the market cap outgrowing our small-cap mandate. Etsy is the leading e-commerce marketplace for buyers and sellers of unique, hard-to-find handmade or vintage products. Given its large addressable market, experienced management team and unique technology investments, we believed the company had a long runway for further top-line growth. However, financial results have been disappointing, and we decided to exit the position. Notable trims in the quarter included Workiva (WK) and Wingstop (WING). Workiva is a leading provider of cloud software for financial reporting with approximately 70% of its business tied to SEC reporting through its core Wdesk offering. Our profit cycle thesis is based on the company's capability to identify and quickly roll out new products, expand beyond North America and benefit from the ramp-up of ESG regulatory reporting longer term. While we believe trends support the company's growth over a multiyear period, we believe it may face near-term deceleration due to corporate decision-makers prioritizing spending toward AI-related projects versus enterprise software solutions. Wingstop has been an extremely strong performer for our portfolio since the beginning of 2023. The company is in the early stages of growing its store count domestically and internationally, which we believe is supported by attractive economics for franchisees and growing brand awareness. We continue to be impressed by the company's earnings results, which are benefiting from strong same- store sales momentum driven by menu innovation, national branding efforts, integration of delivery providers and an ongoing value-based bundling strategy. We trimmed the position based on our valuation discipline. Stewardship Update One of the central principles of our sustainable investing framework is cultivating a positive direction of travel with our portfolio companies. Directly engaging with companies is a key strategy in this effort, but we believe proxy voting is an equally important and visible communication tool. It allows us to transparently express our views on important topics such as board leadership, executive compensation and shareholder proposals. So far this year, shareholder proposal activity remained steady with 58 proposals, compared to 55 at the same time last year. The distribution between environmental, social and governance proposals was similar, though there was a slight increase in social-related proposals. Notably, eight proposals received majority support this year, while none achieved such backing last year. Six of the majority-supported proposals were governance-related, focusing on the shareholder ownership level required to call a special board of director meeting or to change to a majority vote standard instead of supermajority standards. Recognizing that companies may initially adopt certain governance protections upon entering the public market, we believe they should evolve toward more standard and shareholder-friendly governance practices over time. Our evaluation of these proposals considers a company's overall governance framework, as well as its size and maturity as a public company. The other two shareholder proposals receiving majority support requested disclosure of greenhouse gas emissions as well as political contributions and expenditures. Overall, we supported 11 of 58 shareholder proposals this year, including 5 of the 8 such proposals receiving majority support. Consistent with prior years, we considered the proposal's materiality and specificity as written, each company's direction of travel on the topic and its responsiveness to general shareholder concerns. We look forward to sharing further insights and highlights of our proxy voting activity in our annual stewardship report next year. One of the major market narratives this year has been the lack of breadth with a small number of disproportionate winners. AI has received tremendous attention and driven extraordinary gains among shares of companies directly exposed to the trend, such as those producing GPUs, networking equipment and other data center infrastructure. Nvidia is the obvious winner. The company entered the year valued at $1.2 trillion, ended the quarter at over $3 trillion and briefly surpassed Microsoft as the most valuable public company in the world. Within our small-cap universe, companies like Onto Innovation have done exceptionally well. However, outside of these direct AI beneficiaries, much of the technology sector has been weak this year, including semiconductor companies not exposed to data center growth and software makers. We have seen inventory downcycles in semiconductors before, and they don't last forever. While several holdings are experiencing short- term cyclical headwinds, we are confident that the secular growth drivers (industrial automation, vehicle electrification, clean energy, etc.) enjoyed by companies like Lattice Semiconductor will soon return to the fore. We are remaining patient. Multiple of our software investments have experienced weak results due to two underlying factors. The first is macroeconomic weakness pressuring small- and medium-sized business customers. Second, as it relates to AI, corporate decision-makers have been prioritizing spending toward AI-related projects versus enterprise software solutions. As in semiconductors, we have remained patient with our software holdings. While growth has slowed, these franchises are still compounding at healthy rates. Over the medium term, we believe well-positioned cloud software franchises will leverage generative AI advances to enhance their platforms and increase customer demand. Valuations seem attractive relative to this visible growth opportunity. A similar story about "haves and have-nots" can be told in other sectors too. Take health care, for example. The leaders in GLP-1 obesity therapies, Eli Lilly (LLY) and Novo Nordisk (NVO), have deservedly outperformed dramatically. Looking at the MSCI All Country World Index over the last three years, the health care sector has generated an 11.8% return versus 17.5% for the broader index, despite each of the two companies generating greater than 250% returns. If you were to remove them, the sector return drops to -0.4%. Many companies with promising long-term growth opportunities but mixed near-term trends have seen valuations compress. We consider that to be an opportunity for our process to look beyond short-term headwinds and position the portfolio for accelerating future profit cycles. Consistent with examples in this letter, we're staying disciplined on valuation as our winners approach our private market value estimates (such as Wingstop) while recognizing that further fundamental acceleration for some of these franchises is possible in the quarters ahead. Meanwhile, we are cautiously adding to strong franchises wrestling with short-term headwinds where valuations are compelling and our medium-to-long-term conviction is high. We are grateful for the ability to look past short-term performance considerations as we seek to consistently execute our process on behalf of our long-term-focused clients. Uncertainty about the market environment remains as investors grapple with geopolitical unrest, important elections across many large global markets, a slowing economy and what this could all mean for inflation and interest rate policy in the quarters ahead. We believe the best way to navigate these uncertainties is to focus on what we do best: identifying high-quality franchises experiencing interesting profit cycles.

Fidelity International Growth Fund Q2 2024 Quarterly Review

Market projections point toward more rate cuts in 2024, including from the U.S. Federal Reserve and Bank of England, but the timing and pace of easing is significantly diminished compared with expectations entering the year. Investment Approach Fidelity® International Growth Fund is a diversified international equity strategy with a large-cap growth orientation. Our investment approach targets companies with multiyear structural growth prospects, high barriers to entry and attractive valuations based on our earnings forecasts. Investment ideas typically fall into three main categories: structurally attractive growth themes, where investors may be underestimating the durability of growth drivers and long-term earnings power; cyclically out-of-favor companies with limited competition and pricing power, where investors may be focusing on near-term cyclical concerns and discounting long-term prospects; and companies with strong earnings potential whose share prices have fallen due to macroeconomic events. We strive to uncover these companies through in-depth fundamental analysis, working in concert with Fidelity's global research team, with the goal of capturing market upside while limiting downside participation. Performance Summary Cumulative Annualized 3 Month YTD 1 Year 3 Year 5 Year 10 Year/ LOF 1 Fidelity International Growth Fund (MUTF:FIGFX) Gross Expense Ratio: 0.84% 2 -1.88% 6.27% 12.06% 1.39% 8.14% 6.93% MSCI EAFE Growth Index (Net MA) -0.67% 6.35% 9.55% 0.22% 6.61% 5.58% Morningstar Fund Foreign Large Growth -0.26% 6.38% 9.87% -2.28% 6.16% 5.36% % Rank in Morningstar Category (1% = Best) -- -- 31% 18% 21% 17% # of Funds in Morningstar Category -- -- 398 383 331 221 Click to enlarge Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/2007. This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent fiscal year, or estimated amounts for the current fiscal year in the case of a newly launched fund. It does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit Fidelity Funds | Mutual Funds from Fidelity Investments, Financial Professionals | Fidelity Institutional, or Fidelity NetBenefits | Employee Benefits. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. For definitions and other important information, please see the Definitions and Important Information section of this Fund Review. Click to enlarge Performance Review For the three months ending June 30, 2024, the fund's Retail Class shares returned -1.88%, trailing the -0.67% result of the benchmark MSCI EAFE Growth Index. Importantly, longer-term comparisons remain quite favorable. International equities finished the second quarter with mixed results as the global economic and earnings growth backdrop remained largely constructive, underpinning a period of relatively low market volatility. Global monetary policy remained in focus, with the U.S. Federal Reserve delaying its expected interest-rate cuts while the European Central Bank and Bank of Canada both lowering rates in Q2, becoming the first to ease after the rapid tightening cycle that began in 2022. Elsewhere, China's policymakers maintained an accommodative stance as well, though monetary support in recent months gave way to a greater emphasis on regulatory actions. Within the benchmark MSCI EAFE Growth Index, major constituent Japan (-5%) was the biggest performance headwind by country, followed by France (-9%) and Italy (-2%). Conversely, several European and Asia Pacific ex-Japan markets registered solid advances, among them Singapore (+11%), Denmark (+8%) and the Netherlands (+5%). More-modest gains were seen among big benchmark components Switzerland and Germany (each +1%), the U.K. (+2%) and Australia (+3%). Sector returns also proved a mixed bag in the second quarter, with consumer discretionary (-8%), materials (-7%) and consumer staples (-3%) stocks sliding the most. In contrast, energy (+13%), utilities (+5%), health care and financials (+4% each) stood out to the upside. Against this backdrop, we maintained our active, "bottom-up" approach to investing - applying fundamental research to uncover companies with compelling characteristics - but the fund fell just short of the benchmark for the quarter, due to security selection. By country, we had particularly weak results in the U.K. and France. Unfavorable positioning within the Asia Pacific ex-Japan region also hurt. Sector-wise, picks among financials and industrials stocks - capital goods firms in particular - notably hurt, as did an overweight in materials. The biggest individual detractor was our outsized stake in Japan's Lasertec (OTCPK:LSRCF, -22%), the dominant supplier of inspection systems for extreme ultraviolet lithography masks and mask blanks. In April, the company reported that both revenue and earnings handily topped investors' expectations, propelling the stock higher. However, that bump was erased in early June after short-sale investor Scorpion Capital published a report on Lasertec claiming fraudulent accounting practices. Based on our internal research and discussions with management, many of the concerns seemed exaggerated, in our view. Nonetheless, we sold the stock prior to period end. The decision to avoid shares of British drugmaker and major index constituent AstraZeneca (AZN, +16%) also pressured relative performance. The company delivered better-than-expected Q1 sales and profits amid robust demand within its oncology business, bolstering the stock this period. The firm did not meet our investment criteria, however, so we chose to invest elsewhere. Outsized exposure to Irish building materials firm CRH (CRH, -13%) was another performance challenge in Q2. This vertically integrated business manufactures and supplies a variety of construction products, including aggregates and cement, in addition to having a solid history of making opportunistic acquisitions and expanding its profit margin. Shares of the firm rallied in May amid strong quarterly financial results, but then trended lower as bad weather caused some near-term project delays. We took advantage of the dip to increase our position in the stock. Turning to positives, an underweight and good picks in Japan notably contributed for the quarter, as did non-benchmark exposure to Taiwan and favorable positioning in Sweden. At the sector level, investment choices among tech stocks and an underweight in consumer discretionary added the most value. On a stock-specific basis, a non-benchmark position in Taiwan Semiconductor Manufacturing (TSM, +24%) led the way the past three months. The chip foundry benefited from its strong position in the artificial intelligence supply chain and its relationships with several of the world's leading AI developers. With that said, the company's Q1 earnings report, released in mid-April, showed mixed results - while AI-related business drove an increase in profitability, other segments, such as smartphones and automotive, were down. We increased exposure here, making the stock a top-10 holding by the end of June. A larger-than-benchmark stake in Swedish industrial automation equipment provider Atlas Copco (OTCPK:ATLKY, +12%) was another notable relative contributor. Management reported order intake that was stronger than anticipated, meanwhile revenue was about in line with consensus estimates. Atlas Copco was the portfolio's No. 5 position at the midpoint of 2024. Not owning Japanese benchmark component Toyota Motor (TM, -18%) also proved advantageous. Shares of the firm underperformed due to mixed financial results for the first quarter in which revenue surprised to the upside, but earnings were roughly on par with analysts' expectations. Moreover, the company's financial guidance for its next fiscal year was viewed as disappointing. Largest Contributors vs. Benchmark Holding Market Segment Average Relative Weight Relative Contribution (basis points)* Taiwan Semiconductor Information Manufacturing Co. Ltd. Technology 2.85% 65 Atlas Copco AB (B Shares) Industrials 2.75% 31 Toyota Motor Corp. Consumer Discretionary -1.48% 29 Recruit Holdings Co. Ltd. (OTCPK:RCRRF) Industrials 1.23% 27 Tokyo Electron Ltd. (OTCPK:TOELY) Information Technology -1.26% 22 * 1 basis point = 0.01%. Click to enlarge Largest Detractors vs. Benchmark Holding Market Segment Average Relative Weight Relative Contribution (basis points)* Lasertec Corp. Information Technology 1.03% -39 AstraZeneca PLC (United Kingdom) Health Care -2.71% -39 CRH PLC Materials 2.75% -35 Airbus Group NV (OTCPK:EADSF) Industrials 1.30% -34 Sherwin-Williams Co. (SHW) Materials 1.81% -27 * 1 basis point = 0.01%. Click to enlarge Outlook and Positioning Global capital markets continue to enjoy favorable momentum and easier financial conditions, even though the pace and magnitude of monetary easing remains uncertain. Market projections point toward more rate cuts in 2024, including from the U.S. Federal Reserve and Bank of England, but the timing and pace of easing is significantly diminished compared with expectations entering the year. China's cyclical trends are mixed, and it remains uncertain whether policy easing will translate into a full-blown economic reacceleration. Investors continue to anticipate a broad-based rebound for global earnings growth in 2024, though the forward 12-month price-to-earnings ratios for both developed and emerging markets are substantially lower than their trailing valuations. Cyclically adjusted P/E ratios for non-U.S. stock markets appear relatively attractive, particularly versus current U.S. valuations, which are well above our secular forecasts. We believe shifting long-term trends in economic and policy conditions imply a secular regime change for financial markets. Record-high debt and widespread aging demographics create challenges for fiscal and monetary policy, while more unstable geopolitics and peaking global integration represent a different direction from recent decades. Regardless of the prevailing market landscape, our investment approach remains focused on companies with multiyear structural growth prospects, high barriers to entry and attractive valuations based on our earnings forecasts. In Q2, the fund's allocation to industrials stocks rose noticeably, securing its place as the largest overweight, followed by tech. The portfolio also had outsized exposure to financials, materials and energy as of quarter end. Within industrials, capital goods continued to the biggest area of emphasis. In tech, we favored semiconductor-related and hardware/equipment firms the most. Conversely, health care, consumer staples and consumer discretionary represented the largest sector underweights, by far. We also continued to hold smaller-than-benchmark stakes in communication services, while avoiding real estate and utilities entirely. Industry-wise, our biggest underweight as of June 30 was in pharmaceuticals, biotechnology & life sciences, followed by food, beverage & tobacco, health care equipment & services, and consumer durables & apparel. The fund's geographic positioning remained fairly consistent the past three months. Ireland, Sweden and the Netherlands were the most sizable country overweights. We also maintained meaningful non-benchmark exposure to the U.S., Taiwan, Canada and India. On the other hand, Japan, Switzerland and Hong Kong accounted for the largest relative underweights, while we continued to avoid Australia - a sizable benchmark constituent - altogether. Regarding meaningful changes in Q2, the portfolio's stake in Danish, Taiwanese, British and U.S. equity markets rose versus the prior quarter, whereas its exposure to Japan, Ireland and France fell. Turning to the biggest active stock positions as of June 30, multinational company Linde - the world's largest provider of industrial gas - along with Taiwan Semiconductor Manufacturing and CRH (both mentioned earlier), were the biggest individual overweights. Meanwhile, we continued to avoid several sizable benchmark components that failed to meet our investment criteria, including AstraZeneca and Toyota Motor (both previously discussed), as well as Commonwealth Bank of Australia. Market-Segment Diversification Market Segment Portfolio Weight Index Weight Relative Weight Relative Change From Prior Quarter Industrials 28.37% 21.06% 7.31% 0.07% Information Technology 23.12% 16.81% 6.31% -0.29% Financials 15.84% 10.37% 5.47% 0.70% Consumer Discretionary 10.52% 15.70% -5.18% -0.28% Materials 9.47% 5.10% 4.37% 0.63% Health Care 7.63% 18.39% -10.76% -2.75% Consumer Staples 1.93% 8.74% -6.81% 1.71% Energy 0.75% 0.15% 0.60% 0.05% Communication Services 0.52% 2.45% -1.93% 0.68% Utilities 0.00% 0.60% -0.60% -0.10% Real Estate 0.00% 0.64% -0.64% -0.04% Other 0.00% 0.00% 0.00% 0.00% Click to enlarge Regional Diversification Region Portfolio Weight Index Weight Relative Weight Relative Change From Prior Quarter Europe 62.54% 65.65% -3.11% -1.17% United States 17.98% -- 17.98% 3.03% Japan 8.63% 22.71% -14.08% -1.49% Emerging Markets 5.40% -- 5.40% 1.17% Canada 3.04% -- 3.04% -0.19% Asia-Pacific ex Japan 0.59% 11.64% -11.05% -0.97% Other 0.00% 0.00% 0.00% 0.00% Cash & Net Other Assets 1.82% 0.00% 1.82% -0.38% Click to enlarge 3-Year Risk/return Statistics Portfolio Index Beta 1.04 1.00 Standard Deviation 20.39% 19.18% Sharpe Ratio -0.09 -0.15 Tracking Error 4.18% -- Information Ratio 0.28 -- R-Squared 0.96 -- Click to enlarge Largest Overweights by Holding Holding Market Segment Relative Weight Linde PLC (LIN) Materials 3.95% Taiwan Semiconductor Manufacturing Co. Ltd. Information Technology 3.46% CRH PLC Materials 3.11% ASML Holding NV (ASML, Netherlands) Information Technology 3.02% Safran SA (OTCPK:SAFRF) Industrials 2.94% Click to enlarge Largest Underweights by Holding Holding Market Segment Relative Weight AstraZeneca PLC (United Kingdom) Health Care -2.89% Commonwealth Bank of Australia (OTCPK:CBAUF) Financials -1.70% Toyota Motor Corp. Consumer Discretionary -1.68% Schneider Electric SA (OTCPK:SBGSF) Industrials -1.56% Sony Group Corp. (SONY) Consumer Discretionary -1.26% Click to enlarge Asset Allocation Asset Class Portfolio Weight Index Weight Relative Weight Relative Change From Prior Quarter International Equities 80.15% 100.00% -19.85% -2.67% Developed Markets 74.76% 100.00% -25.24% -3.83% Emerging Markets 5.39% 0.00% 5.39% 1.16% Tax-Advantaged Domiciles 0.00% 0.00% 0.00% 0.00% Domestic Equities 17.98% 0.00% 17.98% 3.03% Bonds 0.00% 0.00% 0.00% 0.00% Cash & Net Other Assets 1.87% 0.00% 1.87% -0.36% Click to enlarge Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number. "Tax-Advantaged Domiciles" represent countries whose tax policies may be favorable for company incorporation. Click to enlarge 10 Largest Holdings Holding Market Segment ASML Holding NV (Netherlands) Information Technology Novo Nordisk A/S Series B (NVO) Health Care SAP SE (SAP) Information Technology Linde PLC Materials Atlas Copco AB (A Shares) Industrials Safran SA Industrials LVMH Moet Hennessy Louis Vuitton SE (OTCPK:LVMHF) Consumer Discretionary Taiwan Semiconductor Manufacturing Co. Ltd. Information Technology CRH PLC Materials Keyence Corp. (OTCPK:KYCCF) Information Technology 10 Largest Holdings as a % of Net Assets 43.57% Total Number of Holdings 71 Click to enlarge The 10 largest holdings are as of the end of the reporting period, and may not be representative of the fund's current or future investments. Holdings do not include money market investments. Click to enlarge Characteristics Index Valuation Portfolio Index Price/Earnings Trailing 29.1x 26.2x Price/Earnings (IBES 1-Year Forecast) 24.0x 21.8x Price/Book 5.6x 3.8x Price/Cash Flow 21.0x 16.7x Return on Equity (5-Year Trailing) 17.6% 13.2% Growth Sales/Share Growth 1-Year (Trailing) 15.4% 11.4% Earnings/Share Growth 1-Year (Trailing) 30.1% 18.7% Earnings/Share Growth 1-Year (IBES Forecast) 20.8% 18.2% Earnings/Share Growth 5-Year (Trailing) 13.0% 12.1% Size Weighted Average Market Cap ($ Billions) 239.0 137.3 Weighted Median Market Cap ($ Billions) 91.7 77.1 Median Market Cap ($ Billions) 38.4 14.7 Click to enlarge FUND INFORMATION Manager(s): Jed Weiss Trading Symbol: FIGFX Start Date: November 01, 2007 Size (in millions): $5,974.13 Morningstar Category: Fund Foreign Large Growth Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. Click to enlarge Definitions and Important Information Information provided in, and presentation of, this document are for informational and educational purposes only and are not a recommendation to take any particular action, or any action at all, nor an offer or solicitation to buy or sell any securities or services presented. It is not investment advice. Fidelity does not provide legal or tax advice. Before making any investment decisions, you should consult with your own professional advisers and take into account all of the particular facts and circumstances of your individual situation. Fidelity and its representatives may have a conflict of interest in the products or services mentioned in these materials because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and/or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services. CHARACTERISTICS Earnings-Per-Share Growth Trailing measures the growth in reported earnings per share over trailing one- and five-year periods. Earnings-Per-Share Growth (IBES 1-Year Forecast) measures the growth in reported earnings per share as estimated by Wall Street analysts. Median Market Cap identifies the median market capitalization of the portfolio or benchmark as determined by the underlying security market caps. Price-to-Book (P/B) Ratio is the ratio of a company's current share price to reported accumulated profits and capital. Price/Cash Flow is the ratio of a company's current share price to its trailing 12-months cash flow per share. Price-to-Earnings (P/E) Ratio (IBES 1-Year Forecast) is the ratio of a company's current share price to Wall Street analysts' estimates of earnings. Price-to-Earnings (P/E) Ratio Trailing is the ratio of a company's current share price to its trailing 12-months earnings per share. Return on Equity ('ROE') 5-Year Trailing is the ratio of a company's last five years historical profitability to its shareholders' equity. Preferred stock is included as part of each company's net worth. Sales-Per-Share Growth measures the growth in reported sales over the specified past time period. Weighted Average Market Cap identifies the market capitalization of the average equity holding as determined by the dollars invested in the portfolio or benchmark. Weighted Median Market Cap identifies the market capitalization of the median equity holding as determined by the dollars invested in the portfolio or benchmark. IMPORTANT FUND INFORMATION Relative positioning data presented in this commentary is based on the fund's primary benchmark ('Index') unless a secondary benchmark is provided to assess performance. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. MSCI EAFE Growth Index (Net MA Tax) is a market-capitalization weighted index that is designed to measure the investable equity market performance of growth stocks for global investors in developed markets, excluding the U.S. & Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. They should not be construed or used as a recommendation for any sector or industry. RANKING INFORMATION © 2024 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. 3-YEAR RISK/RETURN STATISTICS Beta is a measure of the volatility of a fund relative to its benchmark index. A beta greater (less) than 1 is more (less) volatile than the index. Information Ratio measures a fund's active return (fund's average monthly return minus the benchmark's average monthly return) in relation to the volatility of its active returns. R-Squared measures how a fund's performance correlates with a benchmark index's performance and shows what portion of it can be explained by the performance of the overall market/index. RSquared ranges from 0, meaning no correlation, to 1, meaning perfect correlation. An R-Squared value of less than 0.5 indicates that annualized alpha and beta are not reliable performance statistics. Sharpe Ratio is a measure of historical risk-adjusted performance. It is calculated by dividing the fund's excess returns (the fund's average annual return for the period minus the 3-month "risk free" return rate) and dividing it by the standard deviation of the fund's returns. The higher the ratio, the better the fund's return per unit of risk. The three month "risk free" rate used is the 90-day Treasury Bill rate. Standard Deviation is a statistical measurement of the dispersion of a fund's return over a specified time period. Fidelity calculates standard deviations by comparing a fund's monthly returns to its average monthly return over a 36-month period, and then annualizes the number. Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how the fund actually performed, but merely indicates the volatility of its returns over time. Tracking Error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark, creating an unexpected profit or loss. Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest. Past performance is no guarantee of future results. Views expressed are through the end of the period stated and do not necessarily represent the views of Fidelity. Views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or FMR LLC. References to specific company securities should not be construed as recommendations or investment advice. Diversification does not ensure a profit or guarantee against a loss. S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. Other third-party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR LLC or an affiliated company. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. Fidelity Distributors Company LLC, 500 Salem Street, Smithfield, RI 02917. © 2024 FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. 656458.46.0 Click to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Fidelity's mission is to strengthen the financial well-being of our customers and deliver better outcomes for the clients and businesses we serve. Fidelity's strength comes from the scale of our diversified, market-leading financial services businesses that serve individuals, families, employers, wealth management firms, and institutions. With assets under administration of $12.6 trillion, including discretionary assets of $4.9 trillion as of December 31, 2023, we focus on meeting the unique needs of a broad and growing customer base. Privately held for 77 years, Fidelity employs more than 74,000 associates with its headquarters in Boston and a global presence spanning nine countries across North America, Europe, Asia and Australia.

Fidelity Strategic Dividend & Income Fund Q2 2024 Review

The fund employs a lead portfolio-manager/subportfolio-manager structure. Investment Approach Fidelity® Strategic Dividend & Income® Fund is a multi-asset-class strategy that seeks to provide reasonable income, and potentially also capital appreciation, by investing in a diversified mix of dividend-oriented equity and hybrid securities. The fund's assets are allocated among high dividend-yielding stocks, preferred stocks, real estate investment trusts (REITs) and convertible securities, using a target weighting of 50%, 20%, 15% and 15%, respectively. This strategic allocation attempts to take advantage of the low correlation among these equity/hybrid classes with a goal of optimizing total returns while containing volatility over time. Specialized subportfolio managers are responsible for security selection in their respective areas of expertise and represent the primary source of alpha (risk-adjusted excess return), while the lead portfolio managers have the flexibility to make tactical allocation shifts around the target mix to help manage risk and capitalize on relative-value opportunities. 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/23/2003. 2 This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent fiscal year, or estimated amounts for the current fiscal year in the case of a newly launched fund. It does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit Fidelity Funds | Mutual Funds from Fidelity Investments, Financial Professionals | Fidelity Institutional, or Fidelity NetBenefits | Employee Benefits. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. For definitions and other important information, please see the Definitions and Important Information section of this Fund Review. Click to enlarge Market Review U.S. stocks gained 4.28% in the second quarter, according to the S&P 500® index, after shaking off a rough April and rising steadily due to resilient corporate profits, a frenzy over generative artificial intelligence and the Federal Reserve's likely pivot to cutting interest rates later this year. Amid this favorable backdrop for higher-risk assets, the index continued its late-2023 momentum and reached midyear just shy of its all-time closing high. Growth stocks led the narrow rally, with only three of 11 sectors topping the broader market. The backdrop for the global economy and earnings growth remained largely constructive, underpinning fairly low market volatility. The move toward global monetary easing inched forward, although persistent core inflation in the U.S. continued to keep the Fed on hold. Looking ahead, the pace and magnitude of global monetary easing remains uncertain, while near-term risk of a recession in the U.S. appears muted. In Q2, U.S. large-cap growth stocks once again topped the performance leaderboard, adding to a strong year-to-date gain in what was a relatively quiet three months for asset markets. In April, the S&P 500® returned -4.08%, as inflation remained stickier than expected, spurring doubts of a soft landing for the economy. Reversing course, the S&P 500® rose 4.96% in May. Tech stocks, particularly AI-related names, came back into focus, while the bull market finally began to reflect broader participation. At its June meeting, the Fed bumped up its inflation forecast and reduced its outlook from three cuts to one in 2024. The market followed suit, reducing its rate-cut expectations for the second straight quarter. Still, signs of inflation easing helped the index gain 3.59% for the month, boosting its year-to-date result to 15.29%. For the quarter, growth (+10%) shares within the index topped value (-2%), while large-caps handily bested smaller-caps. By sector within the S&P 500®, a continued rally in the stock prices of the largest U.S. companies by market capitalization - concentrated in information technology (+14%) and communication services (+9%), fanned by AI fervor - once again stood out. In other categories, utilities rose roughly 5% to round out the contributors. The sector benefited from strong fundamentals, powerful, multiyear secular trends, and the potential for a growth super-cycle driven by utilities' key role in the AI revolution. Conversely, notable laggards included materials (-5%), industrials (-3%) and energy (-2%), the latter hampered by sluggish oil prices. Within this environment, the Fidelity Strategic Dividend & Income Composite Index SM returned -0.90% the past three months. The index consists of four asset classes: high-dividend-yielding stocks, preferred stocks, real estate investment trusts and convertible securities. Dividend-paying equities, as measured by the MSCI USA High Dividend Yield Index, returned -1.73% this past quarter, weighed down the most by consumer discretionary and health care stocks. Meanwhile, REITs, according to the FTSE NAREIT Equity REITs Index, were roughly flat (+0.06%) amid mixed performance, where apartment and health care REITs led the way, as most property types experienced only slightly positive or negative returns in Q2. Elsewhere, convertible securities - hybrid instruments that combine the features of both stocks and bonds -generated a -0.21% result for the period, per the ICE BofA All U.S. Convertibles Index, while preferred stocks, as measured by the ICE BofA®Fixed Rate Preferred Securities index, returned -0.13%. [1]MSCI USA High Dividend Yield Index [2]ICE BofA Fixed Rate Preferred Securities Index [3]ICE BofA All US Convertibles Index [4]FTSE NAREIT Equity REITs Index Click to enlarge Performance Review Detailed Fund Attribution Relative To Benchmark Strategy: Asset Allocation Click to enlarge Dividend-Paying Equities The fund's roughly neutral positioning among large-cap, dividend-paying stocks had little impact on its relative result in Q2. (Neutral) Preferred Stocks A small average overweight in preferreds contributed modestly to performance versus the Composite index. (Slight Positive) Convertible Securities A large underweight in this asset class proved modestly detrimental, as convertibles slightly outperformed this period. (Slight Negative) REITs The fund's allocation here roughly mirrored the index, resulting in a very minor performance drag the past three months. (Slight Negative) Infrastructure An out-of-index stake in this category aided the fund's relative performance in the second quarter. (Positive) MLPs Modest non-Composite exposure to these securities was a plus, given that MLPs outpaced the Composite index. (Slight Positive) Strategy: Security Selection Click to enlarge Dividend-Paying Equities Security selection, especially in the health care sector, contributed most to relative performance by far this period. (Positive) Preferred Stocks Strong investment choices among these holdings contributed to the portfolio's relative return in Q2. (Positive) Convertible Securities Favorable picks in convertibles added value compared with the Composite index the past three months. (Positive) REITs Security selection among real estate stocks hampered the fund's relative result a bit this quarter. (Negative) Infrastructure These securities modestly outpaced the S&P Global Infrastructure Index, providing a small performance lift. (Slight Positive) MLPs The fund's MLP investments outperformed the Alerian MLP Index, bolstering relative performance somewhat. (Slight Positive) Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number. Click to enlarge Outlook and Positioning The fund employs a lead portfolio-manager/subportfolio-manager structure. The two co-lead portfolio managers make the allocation decisions across the fund's major asset classes. Individual selection decisions within each of the asset classes are made by experienced and specialized managers within their respective areas of expertise. Our asset allocation investment process begins with strategic allocation across the fund's asset classes. Depending on the co-lead portfolio managers' outlook for each type of investment, they may over- or underweight an asset class versus the neutral mix. This is done judiciously, with an eye toward long-term trends and in a strategic manner to help preserve the integrity of the portfolios. Separate from the asset allocation investment process, each subportfolio has its own dedicated portfolio manager who employs an asset class-specific process for security selection. The fund's investment approach aims to offer a well-diversified strategy with the potential to deliver strong income regardless of the interest-rate environment. Based on Fidelity research, we have established a target mix of 50% dividend-yielding stocks, 20% preferred stocks, 15% convertible securities and 15% REITs. As the fund's neutral positioning, this is the combination of asset classes and weightings that over time we believe should provide the most favorable risk/reward for our shareholders. Our approach to managing the fund is always highly tactical, meaning we make shifts to the fund's asset mix based on where we see opportunities in the marketplace at any given time. The fund's investable universe also includes non-Composite index asset classes - including master limited partnerships and infrastructure stocks - that provide us with different opportunities to broaden the fund's dividend-paying-equity exposure. As of midyear, non-Composite exposure to infrastructure securities stood at 3%, while we also maintained a small out-of-index allocation to MLPs, although as these holdings outperformed, we reduced that exposure accordingly to manage risk. In Q1, we lowered the portfolio's allocation to convertibles and added to preferreds. This quarter, however, we reversed a small portion of that shift amid a pickup in convertibles issuance that we anticipate should continue, and could even be the start of structural improvement in that market. For now, however, we still see better relative opportunity elsewhere, particularly in infrastructure equities and preferred stocks. In the case of the former, these stocks have been relative laggards due to higher interest rates. Meanwhile, we increasingly favored preferreds for their additional income potential, most notably among fixed-to-floating-rate securities. Overall, we maintained our modest "risk-on" approach while keeping the fund's target allocations relatively close to the index. We saw this positioning as prudent because of the market's focus on Fed policy to the exclusion of many other factors, in addition to the lack of obvious other value opportunities within our investment universe. As such, on June 30 we were about neutrally positioned in equities and REITs. Despite reducing our exposure, the portfolio also had a modest overweight in MLPs. At the midpoint of 2024, we are comfortable with the fund's positioning, especially its non-Composite exposure to infrastructure stocks - the best available opportunity within our investment universe, we believe - along with a smaller overweight in preferreds and an out-of-index stake in master limited partnerships. Additionally, with limited near-term upside for convertibles, we are maintaining our large underweight in the asset class. We will continually monitor conditions over the coming year to determine whether further changes in that allocation may be warranted. Lastly, we patiently await episodic sell-offs and other market events that could generate new opportunities we hope to capitalize upon. The 10 largest holdings are as of the end of the reporting period, and may not be representative of the fund's current or future investments. Holdings do not include money market investments. Click to enlarge Subportfolio Composition Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number. Click to enlarge Fund Information Manager(s): Adam Kramer Ford O'Neil Trading Symbol: FSDIX Start Date: December 23, 2003 Size (in millions): $5,168.83 Morningstar Category: Fund Moderately Aggressive Allocation Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Fixed income investments entail interest rate risk (as interest rates rise bond prices usually fall), the risk of issuer default, issuer credit risk and inflation risk. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. Definitions and Important Information Information provided in, and presentation of, this document are for informational and educational purposes only and are not a recommendation to take any particular action, or any action at all, nor an offer or solicitation to buy or sell any securities or services presented. It is not investment advice. Fidelity does not provide legal or tax advice. Before making any investment decisions, you should consult with your own professional advisers and take into account all of the particular facts and circumstances of your individual situation. Fidelity and its representatives may have a conflict of interest in the products or services mentioned in these materials because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and/or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services. Important Fund Information Relative positioning data presented in this commentary is based on the fund's primary benchmark (index) unless a secondary benchmark is provided to assess performance. Indices It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. Fidelity Strategic Dividend & Income Composite Index is a customized blend of unmanaged indices, weighted as follows: MSCI USA High Dividend Yield - 50%; ICE BofA Fixed Rate Preferred Index - 20%; FTSE NAREIT Equity REITs - 15% and ICE BofA U.S. Convertibles Index - 15%. The composition differed in periods prior to December 18, 2010. S&P 500 Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Bloomberg U.S. Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs) ABS, and CMBS. FTSE NAREIT Equity REITs Index is a market-capitalization-weighted index that is designed to measure the performance of tax-qualified real estate investment trusts (REITS) that are listed on the New York Stock Exchange, the NYSE MKT LLC, or the NASDAQ National Market List with more than fifty percent of total assets in qualifying real estate assets secured by real property. Mortgage and timber REITs are excluded. MSCI USA High Dividend Yield Index is a market-capitalization-weighted index of stocks designed to measure the performance of the high-dividend-yielding segment of the U.S. large- and mid-cap equity market. Real estate investment trusts (REITs) are excluded. Eligible companies must have a persistent and sustainable dividend and a dividend yield that is meaningfully higher than average for the parent MSCI ACWI (All Country World Index) USA Index. The ICE BofA Fixed Rate Preferred Securities Index is a market-capitalization-weighted index of fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. Qualifying securities must have an investment-grade rating (based on an average of Moody's, S&P and Fitch) and an investment-grade-rated country of risk. In addition, qualifying securities must be issued as public securities or through a 144a filing, must be issued in $25, $50 or $100 par/liquidation preference increments, must have at least one year until final maturity, a fixed coupon or dividend schedule, and must have a minimum amount outstanding of $100 million. The ICE BofA All U.S. Convertibles Index is a market-capitalization-weighted index of domestic U.S. corporate convertible securities including mandatory convertible preferreds. Nasdaq Composite Index is a market capitalization-weighted index that is designed to represent the performance of NASDAQ stocks. Market-Segment Weights Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. They should not be construed or used as a recommendation for any sector or industry. Ranking Information © 2024 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. Relative Weights Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest. Past performance is no guarantee of future results. Views expressed are through the end of the period stated and do not necessarily represent the views of Fidelity. Views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or FMR LLC. References to specific company securities should not be construed as recommendations or investment advice. Diversification does not ensure a profit or guarantee against a loss. S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. Other third-party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR LLC or an affiliated company. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. Fidelity Distributors Company LLC, 500 Salem Street, Smithfield, RI 02917. © 2024 FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. 676334.42.0 Click to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. Fidelity's mission is to strengthen the financial well-being of our customers and deliver better outcomes for the clients and businesses we serve. Fidelity's strength comes from the scale of our diversified, market-leading financial services businesses that serve individuals, families, employers, wealth management firms, and institutions. With assets under administration of $12.6 trillion, including discretionary assets of $4.9 trillion as of December 31, 2023, we focus on meeting the unique needs of a broad and growing customer base. Privately held for 77 years, Fidelity employs more than 74,000 associates with its headquarters in Boston and a global presence spanning nine countries across North America, Europe, Asia and Australia.

The Ithaka Group Q2 2024 Commentary

Global markets exuded optimism in the second quarter of 2024, fueled by expectations of looser monetary policy from the Federal Reserve and ongoing growth opportunities from artificial intelligence ('AI'). This optimism pushed the S&P 500 (SP500, SPX) up 4.3% for the quarter and 15.3% for the year, the Russell 1000 Growth ("R1000G") up 8.3% for the quarter and 21.7% for the year, and the Dow down 1.7% for the quarter and up 3.7% for the year. The main driver of such robust returns rests squarely on the shoulders of the Magnificent 7 ("Mag 7"), which comprises Apple (AAPL), Alphabet (GOOG,GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA). These seven companies combined have driven 60.6% of the return for the S&P and 74.3% of the return for the R1000G. The current bull market is like nothing we have seen before. The market's concentrated structure, with the Mag 7 names accounting for 54.8% of the R1000G's weighting, has created a phenomenon in which only a handful of stocks are producing the vast majority of the major indices' gains. Although most Mag 7 names contributed positively to this performance, Nvidia continued to perform head and shoulders above the rest, with its YTD gain clocking in around 150%. Harking back to Ithaka's founding in 2008, the investment team gave serious consideration to deciding what would be the appropriate cap in weighting for any individual holding in client portfolios. With senior members of the investment team having lived through the 1987 Crash, the bursting of the Dot- Com Bubble in March 2000, and endeavoring to stand up its investment business during the '08/'09 Great Financial Crisis, Ithaka's founding investment team decided to implement an 8% cap in any one holding. While we did not, and have not since, argued that 8% is a magic number, we believed it offered us the ability to own "a lot of what we like a lot," while simultaneously implementing a hard-and-fast risk management parameter into the portfolio management process. During Ithaka's fifteen and a half year history, the 8% rule has come into play three times. First, with Meta (then Facebook) back in late 2014 to early 2018. Second, with Amazon in 2018. And finally with Nvidia from the last trading day of 2021 to the present. Over the last two and a half years, we have been obligated to trim our Nvidia holding 12 times, taking out a cumulative 1,095bps of capital. While this has been a happy occurrence from the point of view of NVDA's vast outperformance, we now find ourselves in the unusual position of being underweight to our index in each of our top three holdings to the tune of 530 basis points. Further, we are underweight the entirety of the Mag 7, which comprises 54.8% of the R1000G, by 23 percentage points. In our ideal world, by being concentrated in our best ideas, we would hold an active bet in every one of our portfolio holdings. However, doing so today would force us to commit over 55% of our clients' capital to seven holdings causing us to breach our 8% cap in the largest three of the seven stocks. As it has throughout our history, our 8% cap will continue to be an important part of our risk management strategy by forcing profit taking and likely limiting portfolio volatility. As we stand here today, we have no insight into whether the Mag 7 will continue to drive market returns with the same dominance it has in the past. If history is any guide, eventually the Old Guard cedes ground to the younger generals. Needless to say this Changing of the Guard would become a headwind for our index, which has grown overly concentrated in a relative few holdings. 2Q24 Performance During the second quarter Ithaka's portfolio underperformed in a strong market, rising 4.2% (gross of fees) vs the R1000G rising 8.3%. Ithaka's 410bps of underperformance was entirely due to stock selection, with a negligible tailwind from sector allocation. Our portfolio demonstrated weak breadth and depth, with 10 of 31 stocks held for the entire quarter, representing 32% of the names and 31% of the total portfolio's weighting, outperforming our benchmark. This was not surprising given the narrowness of the market's returns of late. At the portfolio sector level Ithaka realized positive relative returns in one of the four major growth sectors in which we hold active bets, namely Consumer Discretionary. Within Consumer Discretionary, our outperformance was spread across the board, with six of our eight holdings outperforming our benchmark. We realized modest returns in the Technology sector, with only five of fifteen holdings outperforming our benchmark. Two of our largest outperformers in the sector happen to be names in which, given market appreciation, we are under-weighted vs the R1000G due to our 8% cap in any one holding, with the index holding greater than a 10% weighting in each name. Within Health Care, our underperformance was driven by three of our six holdings, with the two largest decliners being MedTech holdings that fell out of favor in the quarter. Our slight underperformance in Financial Services was broad-based and due to overall weak sector performance relative to the Mag 7 cohort of stocks. Contributors and Detractors Nvidia is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. Nvidia's products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artificial intelligence ('AI'), machine learning, and autonomous driving. The reason for the stock's appreciation in the quarter was twofold: First, the stock benefited from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia's products far into the future; Second, Nvidia posted another strong beat- and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today's accelerated computing infrastructure. Apple is a global consumer electronics and software company that designs and markets mobile communications devices (iPhones), personal computers (Macs), multi-purpose tablets (iPads), and wearables (Apple Watch, AirPods, and Accessories). The company also sells several high-margin consumer services including Advertising, AppleCare, Cloud Services, Digital Content and Payment Services. The stock's outperformance during the quarter was due to hopes the September release of the iPhone 16, which will for the first time incorporate artificial intelligence into a widely used consumer device, could drive a golden upgrade cycle for Apple. Founded in 1994, Amazon has evolved from its early roots as an online bookstore to become one of the world's largest eCommerce retailers. At the end of 2023 Amazon stood poised to capture ~40% of all US e-commerce sales, representing five times more share than the next closest competitor. In addition to eCommerce, Amazon Web Services ("AWS") has become the market leader in outsourced cloud infrastructure. Further, Amazon Advertising is garnering significant share in digital advertising, particularly product placement ads, thanks to consumers beginning their product searches on Amazon's site. Amazon's stock appreciated on the back of stabilization of the company's cloud computing segment and increased confidence management would be able to contain expenses and push operating margins above prior peaks in the near-to-medium term. Salesforce is the largest pure-play cloud software company, holding a leading market share in customer relationship management applications and a top-five market share position in the company's other clouds (Marketing, Service, Platform, Analytics, Integration, and Commerce). The company's software subscription term-license model differs from the traditional perpetual-license software model in two respects: (1) the software is hosted on centralized servers and delivered over the internet, as opposed to traditional enterprise software that is loaded directly onto customers' hard drives or servers; and (2) the revenue model is subscription-based, typically charging monthly fees per user as opposed to charging one-time licensing fees. The stock's weak relative performance followed its fiscal first quarter earnings announcement, where the company missed top-line and cRPO (current remaining performance obligations) estimates while also issuing weak forward guidance. Since its inception, Veeva Systems has grown to become the leading SaaS provider of cloud solutions for the global life sciences industry. Veeva's industry-specific cloud solutions provide data, software, and services to address a broad range of needs, including multi-channel customer relationship management, content management, master data management, and customer data management. Veeva's products help its customers bring products to market faster while maintaining compliance with government regulations. Veeva's underperformance in the quarter was due to a $30M revenue guidance cut during their fiscal first quarter earnings announcement. The cut was due to deal scrutiny from enterprise customers driven by ongoing macro uncertainty and near term disruption from AI resource allocation. DexCom is a medical device company focused on the design, development, and commercialization of continuous glucose monitoring (CGM) systems, primarily for people with diabetes. Diabetes is a chronic, life-threatening disease for which there is no known cure. DexCom's CGM system is superior to traditional finger-stick tests because it provides users with continuous data (including glucose trends and time spent in hyper or hypoglycemia) versus a snapshot in time. Dexcom's stock suffered despite a solid earnings announcement that beat Street expectations across the board. The fall in the stock price was likely due to missing elevated buy-side expectations following multiple quarters of accelerating fundamental growth. During the quarter we initiated a position in e.l.f. Beauty (ELF) and did not eliminate any portfolio holdings. Both our trailing 12-month turnover and our trailing 3-year average annual turnover were ~flat at 12.9% and 12.7%, respectively. Ithaka claims no expertise in economic or market predictions, and top-down analysis merely plays a supporting role in our approach to investing. We typically take our cues on the economy and the markets from our companies' management teams as they discuss their business prospects, and industry outlooks, during quarterly calls. During the second quarter 91% of our portfolio holdings beat both top- and bottom-line expectations, which resulted in the average stock falling ~1%, eight stocks increasing >5%, and twelve stocks falling >5%. The skew in the quarter was negative with fat tails. On their earnings calls, management teams continued to discuss the health of the consumer, AI roadmaps, and pared back capital spending plans, which has been the case for the past four quarters. Outside of these constant themes, the story filling all the airtime has been the dominance of the Mag 7 names on both a fundamental and price basis, and the likely forward paths for these companies. The absolute dominance of the Mag 7 names since the 4th quarter of 2022 has been remarkable. To give you some statistics, the S&P 500 has added $13.7T in market cap since December 31st, 2022 (growing from $32.1T to $45.8T). Of that $13.7T gain, the Mag 7 has accounted for $8.82T of it, or ~65% of the total, with the index up 45.6% over this time period. Of the Mag 7 names, six have had their forward multiple expand (between 15% and 183%), while one lone company saw its multiple contract 27%. In almost every case this multiple expansion appears to be somewhat explainable. Since the 2nd quarter of 2023, the earnings of this basket of stocks has been growing between 40% and 60%, while the other 493 companies have not seen their aggregate earnings grow at all (see the chart below). In the second quarter of 2024, for the first time in six quarters, the other 493 names in the index will see aggregate earnings growth, while the Mag 7 names will see decelerating earnings growth. The gap between the earnings of these two baskets of stocks should continually close throughout the rest of this year and will likely exit 2024 growing at fairly similar rates. If these estimates are indeed correct, it should help the market leadership broaden out as investors look beyond the basket that has dominated the market toward other names that are once again growing earnings whilst supporting much more reasonable valuations (18.2x NTM earnings for the 493 stocks vs 36.2x for the Mag 7). Ithaka's investment team continues to believe that the Mag 7 companies have been, and will continue to be, some of the best performing businesses ever created by mankind. Having said that, we are hopeful that the narrowness of this bull market broadens out, increasing its overall health by lessening its dependence on a small group of richly valued companies, albeit in most instances well deserved. Our market outlook section wouldn't be complete without our obligatory musings on the Fed's future policy decisions. Following the now infamous December policy meeting when the Fed raised the white flag on rate increases, asset markets (especially equity markets) have been laser focused on the timing of rate cuts by the Fed. The market received welcome news in Mid-July with the June CPI data release, which showed a 0.1% drop in prices from May, helping to slow the annual rate of inflation to 3.0% from 3.3% in the prior month. Following this report, the market quickly priced in a 90% chance of at least one rate cut by the September meeting and a 54% chance of three rate cuts by the end of 2024, bringing the neutral rate to 4.50%- 4.75%. While we are not economists, given the strength of the labor market, the contraction in the rate of inflation, and the impending presidential election, it is reasonable to expect rates to take, at least, a small step down sometime before the end of 2024. As always, we end this letter acknowledging that one's ability to digest, forecast, and accurately discount the above macro factors is pretty much an exercise in futility, and we therefore choose to stay fully invested and focused on our mission of creating wealth for our clients by owning, in size, the great growth stories of our day. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Artisan Value Fund Q2 2024 Commentary

Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. Call 800.344.1770 for current to most recent month-end performance. Following broad market participation that drove US equities higher in late 2023 and early 2024, markets narrowed in Q2, with a handful of mega-cap technology names lifting the S&P 500® Index (SP500, SPX) to all-time highs on the AI FOMO (artificial intelligence "fear of missing out") trade. Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) alone contributed 85% of the S&P 500®'s 4.28% Q2 return. However, due to the market's narrow breadth in Q2, the index's strong headline result was not representative of the average stock's performance. Most US stocks were in fact negative returners, with the median S&P 500® Index stock down -3.20%. Value stocks trailed, as did mid and small caps, with the Russell indices for these style and size categories each returning between -2% to -4%. Large-cap value stocks as measured by the Russell 1000® Value Index returned -2.17%. Most sectors within the Russell 1000® Value Index were weak. The worst performing was consumer discretionary -- down about 7%. Additional laggards were the health care, materials and communication services sectors. Exceptions on the upside were utilities and consumer staples. Given their higher leverage, utilities were beneficiaries of falling longer term bond yields as US inflation continues to cool. Given the meaningful outperformance by large-cap growth stocks, which drove the broad large-cap US indices higher, one might conclude that equity returns have simply followed earnings growth. However, as shown in Exhibit 1, Q2's variance in returns between the S&P 500® and Russell 1000® Value Indices was mostly attributable to shifting valuations -- multiple expansion of the former and multiple contraction of the latter. We will leave it to readers to draw your own conclusions about the market's behavior. We will only point out that value stocks, which were already attractively valued relative to growth stocks based on history, have become even cheaper. Exhibit 1: Size/Style Returns Driven by Multiple Expansion/Contraction Our portfolio modestly trailed the Russell 1000® Value Index. Underperformance in the industrials and consumer staples sectors was counterbalanced by favorable stock picking in the communication services and consumer discretionary sectors. Our above-benchmark weighting in the communication services sector and a lack of utilities holdings also negatively impacted our relative return. In the industrials and consumer staples sectors, Airbus (OTCPK:EADSF) and Diageo (DEO) were key detractors. Airbus, the world's largest aerospace company, lowered its FY2024 profits and free cash flow expectations while also slashing the number of aircraft deliveries to 770 from 800 due to overall supply chain challenges as it's contending with shortages in engines, aerostructures and cabin interiors. As a result, the production ramp-up of A320 narrow-body planes to 75 deliveries per month was also pushed out from 2026 to 2027. Shares naturally pulled back on the news. Despite these setbacks, we believe Airbus remains in a strong strategic position in the global commercial aerospace duopoly. Airbus has steadily taken market share in the global installed fleet over the past 20 years, largely driven by its A320 family, and Airbus remains well positioned over the next decade to continue capturing share given the A320's clear performance edge over Boeing's 737 MAX, even aside from the MAX's well-publicized quality issues. Airbus remains a well-run company, with a leading market share, a higher quality product and a net cash balance sheet, and shares are reasonably valued at a mid-teens P/E. Diageo is the largest spirits company in the world by revenue, with over 200 brands to choose from. Shares have remained under pressure since our initial purchase in December 2023, when the stock was already trading at multiyear trough multiples. More than half of its operating profits come from North America where sales have been sluggish, while sales have been especially weak in Latin America and the Caribbean. Growth is normalizing after a COVID-induced bounce, and consumers have been trading down to cheaper value alternatives, which is a headwind for Diageo's premium brands. Although spirits are more cyclical than other staples, the company's growth prospects are better long term, and we believe the current situation has provided us an attractive investment opportunity. The secular concerns hanging over the stock are a potential generational shift away from alcoholic beverages and the rise of GLP-1 weight-loss drugs that may also reduce the desire for alcohol, sugar and snacks. The first set of issues appear fixable, and we believe they should prove temporary. In the near term, margin expansion will likely be constrained, but the company generates meaningful free cash flow ('FCF') and returns it to shareholders through dividends and share repurchases. Over the past five years, Diageo generated £12 billion FCF and returned £16 billion to shareholders. With regard to the secular concerns, the evidence is mixed. The potential health benefits of GLP-1s are tremendous, but we are unconvinced that these drugs will change broad consumption habits in a sustainable manner. Ultimately, we believe Diageo is a high-quality compounder caught in a bad narrative cycle. Among our other key detractors was Baxter International (BAX), a provider of essential products in renal care, medication delivery, advanced surgery, clinical nutrition, pharma and acute therapies. Though quarterly results beat expectations and the company raised guidance, shares were down because some of the upside to results was in the renal care business, which is being sold to Carlyle Group (CG), whereas there was weakness in its healthcare services and technologies business -- the legacy Hillrom business that it acquired in 2021. Baxter has sought to transform the company by selling several non-core operations, which will raise cash and simplify the business longer term as it focuses on profitable growth. Last year, it sold its BioPharma Solutions business at a significant premium, and this year it is exiting the kidney business. Given the company's growth challenges over the past few years, patience among investors seems to be lacking. In our view, there is significant pessimism embedded in the stock price as it sells cheaply based on our sum-of-the-parts valuation analysis. Turning to the positive side of the ledger, our biggest gainers this quarter were Alphabet (GOOG,GOOGL), Philips (PHG) and Texas Instruments (TXN). Alphabet is one of the aforementioned mega-cap stocks that has benefited from AI enthusiasm, though we've owned Alphabet since 2014 -- years before AI was the "next big thing." As value investors, we're less focused on how AI can amplify earnings growth and instead more concerned with how existing cash streams could be disrupted by AI. The company continues to perform well. In the company's latest quarter, revenue growth was strong in its search (+14% Y/Y) and YouTube (+21% Y/Y) businesses, and Google Cloud revenue growth accelerated to 28% Y/Y, with management citing the benefits of AI initiatives. Alphabet also instituted its first ever dividend and authorized a new $70 billion stock buyback. This comes shortly after Meta Platforms (META), which we also hold in the portfolio, also authorized its first ever dividend. The introductions of dividend payouts offer reassurance these companies' prodigious free cash flow generation will be allocated prudently. Shares sell for 21X 2025 expected earnings, which remains undemanding, in our view, given Alphabet's cash flow generation and ability to compound value over time. Uncertainty regarding potential litigation liabilities related to Philips' first-generation CPAP machine, which has been an overhang on the stock, was removed upon the health care technology company reaching a $1.1 billion settlement over claims the breathing device harmed users. The settlement's dollar amount is in line with our expectations but looks to have been much lower than others' views given the stock's immediate 30%-plus price move on the announcement. With the litigation settled, the company can return to focusing on the fundamentals of the underlying businesses and fulfilling its requirements under the consent decree with the US government. The consent decree provides a roadmap of required actions and prohibitions -- a process likely to take three years to conclude. As part of the consent decree, Philips is prohibited from selling CPAP or BiPAP sleep devices in the US. However, Philips may still service sleep and respiratory care devices already with health care providers and patients and may continue to sell other products in the US. Further, it does not impact the company's sales outside the US. The overall terms are as expected, and there is now a path forward for Philips to eventually return to the market. Texas Instruments is one of the world's largest semiconductor companies, with a dominant share of the analog semiconductor market. With expectations already low, shares benefited from recent quarterly results offering signs that cyclical end markets are bottoming. We established our position in TXN in October 2023 when the stock was in the low $140s, which was ~25% lower than it had been trading as recently as July 2023. The stock has since recovered and is now selling for over $200 in July. Aside from concerns about the semiconductor cycle related to the industry's current overcapacity and high inventories, the stock had been under pressure due to the company's $5 billion per year capital expenditure plan. Taking advantage of tax credits under the CHIPS Act, TXN is building more 300mm wafer fabs in the US to extend its low-cost manufacturing advantage, expand production and bring supply control in a geographically dependable region. TXN is making a long-term bet, but it will mean forgoing free cash flow in the short term. Given management's routine focus on free cash flow growth per share as the primary metric to measure success, the change in strategic direction created some confusion among market participants. TXN shares are rarely cheap, so last year we took advantage of the market's nearsightedness to buy a great company at a reasonable high-teens P/E valuation. The company has a strong competitive moat, an enviable portfolio of long-duration chips, industry leading margins, a consistent history of free cash flow generation and record of disciplined capital allocation. We made one new purchase in Q2, adding PayPal Holdings (PYPL), a financial technology company that enables digital and mobile payments between consumers and merchants. PayPal has world-class assets. It operates the largest two-sided payment network (ex-China); owns Venmo, the largest peer-to-peer payment network (ex-China); and owns Braintree, the third-largest modern payment service provider ('PSP'), which is growing at a similar pace to peers, such as Stripe and Adyen. Each of the PSPs are taking share from legacy competitors such as Worldpay, with significant runway left on remaining share gains. As the original e-commerce payment processor with years of history in the marketplace, PayPal has access to a large trove of customer data, a first-class risk engine and embedded consumer and merchant trust. This is difficult for newer peers to replicate without time and investment. Post-COVID, PayPal's shares have been pressured by intensifying competition, the threat of which has seemingly been exacerbated by prior management missteps. Shares trade for under 14X next year's expected earnings, which have been reset materially lower over the past year due to depressed expectations. This is an attractive entry point to purchase a stake in a business with above-average -- and improving -- unit economics and a strong balance sheet. Competent new management is already leaning on the company's strong financial position to maximize the value of these assets. While we wait for tangible results, we should have plenty of free cash flow pointed back at us in the form of share repurchases. We had no sales this quarter, but we did trim a few of our winners, such as Alphabet and Meta Platforms, on strength. "It's a market of stocks, not a stock market." We are not sure where this saying originated, but its implication is particularly salient in 2024. Market concentration (% weight of top 10 stocks in the S&P 500® Index) is at all-time highs, and correlations of stocks to the broader market (the degree to which returns of individual stocks reflect the index return) have fallen to all-time lows. The S&P 500® Index, which has become increasingly concentrated among a few mega-cap stocks, no longer represents the diverse opportunity set that exists within the US equity market. We are ultimately stock pickers, but when we look at the valuation gap that exists between value and growth stocks, these relative spreads have reextended to highly attractive levels. Compared to P/Es of 22.4X and 30.5X (FY1 earnings) for the S&P 500® and Russell 1000® Growth Indices, the Russell 1000® Value Index sells for just 16.3X. Not since the dot-com bubble have these valuations spreads been this attractive. Our portfolio is even cheaper at 15.7X. Most importantly, we do not believe we are having to sacrifice quality in the current environment to find attractive values. Consistent with our approach of seeking to create a portfolio that is better, safer and cheaper than our benchmark, our portfolio has a greater median ROE (15.8% versus 11.2%) and median higher fixed charge coverage (7.9X versus 4.5X) than the Russell 1000® Value Index. While we can't predict the next recession, the outcomes of upcoming elections or the direction of the market, we feel good about the characteristics of the portfolio we have built.

Artisan Global Value Fund Q2 2024 Commentary

Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. Call 800.344.1770 for current to most recent month-end performance. Performance may reflect agreements to limit a Fund's expenses, which would reduce performance if not in effect. "Prudence is the knowledge of things to be sought, and those to be shunned." -- Cicero During Q2 2024, the Artisan Global Value Fund (MUTF:ARTGX, Investor Class) returned 1.5%. In comparison, the MSCI ACWI Index increased by 2.9%, while the MSCI ACWI Value Index decreased by 0.6%. Year-to- date, our portfolio has risen by 8.8%, whereas the MSCI ACWI Index is up 11.3% and the MSCI ACWI Value Index has grown by 6.2%. These are great returns for a six-month period by any measure. But the delta between our return and that of the MSCI ACWI Index compels us to retread what has become familiar ground for us and our readers: IT sector concentration. This is not a new phenomenon. Over the past 20 years, the IT sector represented almost 20% of the MSCI ACWI Index return. While much of this is justified by the industry's earnings growth, the concentration has recently reached unprecedented levels, particularly in the US. In the four years since the onset of the pandemic, the IT sector represented 34% of the MSCI ACWI Index return and nearly 40% of the S&P 500® Index return. What's more, returns are increasingly concentrated in just a few names. Four companies -- Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG,GOOGL) and Microsoft (MSFT) -- generated essentially all of the MSCI ACWI Index's and S&P 500® Index's Q2 return. Nvidia represented nearly 40% of the total return for the MSCI ACWI Index and 44% of the total return for the S&P 500® Index. Said another way, excluding Nvidia from these indices would have reduced the benchmark's return by nearly half. Lest this increase in Nvidia appear too abstract, consider this. Nvidia's year-to-date dollar value increase is $1.8 trillion. That's equivalent to the 2023 increase in US GDP, which is, of course, representative of the collective economic efforts of about 330 million people. Nvidia's market cap is now $3 trillion. So is the GDP of France. Does this make any sense? We wish that we could definitively say that it doesn't, given that we don't own Nvidia. But the answer is more complicated. The growth in revenue and profits at Nvidia has been stunning. In the calendar year 2020, its revenue was about $17 billion. Estimates for 2024 are around $120 billion. Operating profit is projected to reach about $80 billion in 2024 versus $4.5 billion in 2020. Nvidia's revenue essentially represents the capital spending of a small number of very profitable, very cash-rich technology companies buying up the processors necessary to power artificial intelligence ('AI') software programs. It's an AI landgrab. In order for Nvidia to sustain these levels of revenue or grow them from here, these AI investments must start to generate an ROI for those splashing out $120 billion a year. And if not generating an ROI in the near term, those companies must at least see the prospect of an ROI, a clear sustainable competitive advantage or a moat of some kind. We are watching this unfold in real time through our holdings in Alphabet and Meta. Both are spending very heavily on Nvidia processors. The returns from these investments are an abstraction at this point. Said another way, we don't see and are unable to calculate a near-term return from these investments. But we do believe that AI will increase the engagement levels for both consumers of their respective platforms and advertisers on the platforms. And given that enormous levels of capital spending are required for these investments, we also believe that the barriers to entry will be further raised for both Alphabet and Meta. A couple of Stanford MBAs in their garage trying to create the next search engine or social media platform are engaged in a hopeless task, given the dollars required. That being said, meaningful dollar returns for buyers of Nvidia chips must start to materialize in order to justify the company's market value. At this point, it appears to us to be mostly on the come. But let us zoom back out to the market at a higher level. Instances of a Nvidia concentration effect such as we have just seen are extremely rare. For instance, over the past 33 years, in periods where the market was up more than 5%, no single company represented more than 10% of the S&P 500® Index's total return until the late 1990s. Prior to the pandemic in 2020, this threshold was breached only twice -- once during the dotcom bubble in 1999 when Microsoft accounted for 11% of the index's total return and again in 2007 by Exxon (XOM). Since 2020, overall market returns have become more concentrated, with a single company comprising over 10% of the market return in three of the past four years. The situation has become even more extreme this year, with Nvidia alone contributing ~45% of the market return in Q2 and ~30% of the market return in the first six months. Exhibit 1: Largest Single Stock Contribution to S&P 500® Index Total Return (in up markets >5%) Has this material crowding effect changed the nature of passive investing? As with the Nvidia issue, the answer is complicated. The attraction of index investing has always been twofold: low cost and broad diversification. The low-cost component remains unchanged, and it is meaningful. The diversification issue is where it gets messy. Broad indices now represent a level of concentration, at least in terms of sector- and stock-specific exposure, comparable to or even exceeding what we might typically find in active portfolios. The top five positions in the S&P 500® Index now represent 27% of the index -- arguably all in a single industry. For context, the top five investments in Global Value -- an intentionally concentrated investment strategy -- represent just 23% of our portfolio and are spread across four industries. If you buy an index fund, chances are you are buying a lot of Nvidia and a lot of tech. Of course, this means index returns are now far more idiosyncratic than perhaps many investors understand. So far, it has been an excellent experience, but investing should be a forward-looking exercise. To put an even finer point on it, the index (either the S&P 500® Index or the MSCI ACWI Index) arguably no longer provides broad exposure to the economy or the broader market. It's a lot of tech. A lot of quite expensive tech. Is this the bogey that the industry should be aspiring to match every quarter and every year? What is the greater risk -- underperforming a benchmark or taking excess risk to keep up with a benchmark concentrated in a group of investments that you don't necessarily find attractive? We will leave others to provide the answers. Our investment approach is (and has always been) benchmark agnostic. We have never paid any attention to the index, and clients shouldn't expect our portfolio to look anything like it. We do not seek to participate in every exciting investment theme but rather emphasize building a portfolio of sensible investments and avoiding losses. This involves investing in a diversified group of companies that grow their business value per share over time, have quality characteristics that allow them to perform in a variety of economic environments, have reasonable leverage and are available for purchase at reasonable prices. This is easy to write and hard to implement. Investing is often about controlling your emotions and making sensible decisions. There is a clear distinction between prudent investing and the fear of missing out ('FOMO'). There are many agency risks and other biases that cause people to make suboptimal decisions. But while the current market concentration presents some unique challenges, we would argue that maintaining prudent investing principles and focusing on reasonable diversification, business quality, financial strength and valuation remain the best strategies for building resilient portfolios. As Cicero said, prudence is knowing what to seek and knowing what to shun. In our view, at some point holding an overly concentrated index where gains are driven by a few dominant stocks might become -- dare we say -- imprudent. In our view, our portfolio is more attractive on all these metrics than what is currently represented by the benchmark, and we are very content with our large personal investments in the strategy that sit alongside our clients. But we encourage clients to scrutinize our top holdings and compare them to any of the broader indices and come to their own conclusions. The top contributors to performance for the quarter were Alphabet, Philips (PHG) and Novartis (NVS). Alphabet shares rose by 21% during the quarter, making it the largest contributor to our performance. The company reported excellent Q1 earnings, highlighting accelerating revenue growth, strong profitability and effective capital allocation. Alphabet's core search business is growing at a mid-teens rate -- the fastest growth rate in nearly two years. Importantly, its non-search businesses have reached significant scale, with its cloud and YouTube businesses expected to reach a combined run-rate of $100 billion by the end of 2024. During the quarter, Alphabet also displayed meaningful progress in its AI initiatives, and we believe it is well positioned to be a leader in this field. The capital allocation is solid. It is returning all the free cash flow to shareholders and announced that it will start paying a dividend. Alphabet's shares are trading at just over 20X next year's earnings, which is a very reasonable valuation for a business with such high- quality characteristics and growth potential. Philips was the second-largest contributor to performance this quarter. The shares rose 30% after the company announced a favorable resolution to the litigation involving its sleep apnea business. In April, the company announced a $1 billion master settlement agreement for the personal injury mass tort litigation without having to admit any wrongdoing. The settlement's structure creates a strong protection against future personal injury claims, which effectively puts this entire issue behind it. This litigation has been a major overhang on Philips shares since it announced a voluntary recall in June 2021. We estimate the total cost, which includes the settlement, recall costs, economic loss payments to customers, compliance with the FDA consent decree and other costs, are in the €3 billion-€4 billion range. Following the settlement announcement, we believe the shares are actually more attractive, and we have added to our position. Philips' market cap has declined €25 billion-€30 billion since the recall was announced -- far greater than our estimated total costs. Part of this disconnect is that many investors simply avoid companies with litigation overhangs, and we anticipate a renewed interest in Philips now that the litigation issue is resolved. What they will find is a leading health care equipment business with solid market shares in several attractive and growing end markets. The new CEO is already in the middle of restructuring and portfolio optimization efforts that should result in better growth and profitability levels. The recent settlement removes a major distraction for management and allows it to focus on executing this improvement plan. Shares of Philips are trading at around 12X normalized earnings, which makes it attractive both on an absolute basis and compared to peers, which trade in the high teens to low 20s. Novartis was also a meaningful contributor during the quarter. Its shares rose 11% after reporting solid Q1 earnings and increasing its full-year outlook. The business is performing well, with double-digit revenue growth and improving margins during the quarter. The company now expects revenues to grow 9%-10% for the full year and underlying operating profits to grow 11%-15%. Novartis shares trade at 13X-14X earnings, and the business is expected to continue growing at a healthy rate for the foreseeable future. The biggest detractors from performance during the quarter were Expedia (EXPE), Compass and Henry Schein (HSIC). Expedia shares declined 18% during the quarter after reducing its full- year outlook. It lowered its revenue growth forecast to mid- to high- single digits for 2024 and said margins will stay flat. On the surface, a business growing in the high-single digits while maintaining profitability isn't bad. The issue is the company just completed a major restructuring that was supposed to result in accelerated revenue growth and significant margin expansion. Neither is happening. The company continues to underperform the industry and its peers. Importantly, management will not share with us the important metrics and disclosures that might give us the ability to understand why. It continues to just tell us that improvement is coming. That is not enough for us, and we have lost confidence that the changes will have the intended impact on the company's financial performance. As a result, we made the decision to exit the investment at a modest profit. Compass Group was the second-largest detractor from performance this quarter. There was no fundamental reason for the 6% decline in the shares. Compass ended the prior quarter at an all-time high and simply faded a bit from that high watermark. The business reported good first-half results and increased its full-year outlook. It expects ~10% organic growth and ~15% growth in operating profits. Longer term, there is still a significant penetration opportunity for outsourced catering, which creates a favorable market backdrop and should drive solid organic growth and margin improvement. Compass shares have performed well, but they remain reasonably valued at 20X earnings. Henry Schein declined 15% during the quarter due primarily to weak traffic trends in the overall dental market. In our view, the concerns around near-term traffic trends are misplaced. The long-term trends in the dental industry are favorable. Around 90% of US dentists are currently operating at full capacity, and 50% of the US population still isn't regularly seeing a dentist. We see penetration opportunities and demographic tailwinds in the US and internationally. And while there will be puts and takes, the dental market should grow nicely over time. Schein's business is performing well. It seems to have recovered from the cyberattack in late 2023. Most importantly, it is making good progress on its strategy to shift its business mix toward its own branded products, which have higher growth and margins. This shift benefits Schein by improving its margins, increasing its value to customers, and giving it more leverage with suppliers. This year it expects to grow earnings 10%-15%. As it transforms from a pure distributor of third-party products into a hybrid distributor/manufacturer, we believe it will have more control over its financial model and ability to drive attractive profit growth in a variety of market environments. We find this combination very attractive for a company trading at 11X-12X earnings. During the quarter, we added a small investment in Aon Plc (AON) to the portfolio. Aon is a global leader in the insurance broking and consulting industry. It's the world's second-largest insurance brokerage, which is an attractive industry that we know well. The industry is relatively consolidated and characterized by recurring revenue streams and steady growth. Over the years, we have owned all three of the major companies in this industry -- Marsh & McLennan (MMC), Aon and Willis Towers Watson (WTW). In the course of our careers, we have developed a deep appreciation for the insurance broking business. These businesses have a resilient business model with many underlying growth drivers. Commercial clients face many risks that they would prefer to mitigate with insurance and risk management strategies. Property and casualty risks, the cost of reinsurance, director and officer risks, and workers' compensation are likely to keep growing as asset values and social inflation (i.e., litigation and lawsuit costs) are likely to keep rising. Climate and cyber risks must also be managed. Insurance brokers benefit from these trends as they are paid fees and commissions to help clients craft the appropriate blend of insurance coverage. The beauty of this business is that insurance carriers bear the risk of loss, not brokers like Aon. Aon's stock has declined 13% over the past year for two related reasons. First, Aon's business has been growing more slowly than its primary competitor, Marsh & McLennan. Second, it announced a relatively large and expensive acquisition of middle market insurance broker NFP. Based on our analysis, we believe the recent growth slowdown is mostly due to a business mix that will likely normalize over time. Specifically, Aon has less exposure to the middle-market (which has been growing faster) and more exposure to financial service lines (which have been weak due to the lack of capital markets activity). Aon's growth rate should normalize as IPO and M&A activity normalizes and as it integrates the acquisition of NFP to give it more exposure to the growing middle market. The price it paid for NFP was high, but we have reason to believe the synergies are understated, so the post-synergy valuation will look more reasonable. Aon is trading at 17X forward earnings, which is a significant discount to peers and a reasonable price for a high-quality business in a fantastic industry that should deliver high single-digit profit and free cash flow growth for a very long time. During the quarter, we exited our investments in Expedia and Nintendo (OTCPK:NTDOY). Expedia is discussed in detail earlier in this section. Nintendo shares hit our estimate of intrinsic value.

Artisan Global Discovery Fund Q2 2024 Commentary

We are cautiously adding to strong franchises wrestlingwith short-term headwinds where valuations are compelling and ourmedium-to-long-term conviction is high. Investment Results(%) Average Annual Total Returns QTD YTD 1 Yr 3 Yr 5 Yr 10 Yr Inception Investor Class: APFDX -2.99 5.16 11.79 -2.70 9.45 -- 11.59 Advisor Class: APDDX -2.98 5.14 11.87 -2.62 9.53 -- 11.65 Institutional Class: APHDX -2.91 5.33 12.15 -2.39 9.72 -- 11.79 MSCI All Country World Small Mid Index -2.06 2.83 10.71 -0.34 7.07 6.72 MSCI All Country World Index 2.87 11.30 19.38 5.43 10.76 9.99 Click to enlarge Source: Artisan Partners/MSCI. Returns for periods less than one year are not annualized. Class inception: Investor (21 August 2017); Advisor (3 February 2020); Institutional (3 February 2020). For the period prior to inception, each of Advisor Class and Institutional Class's performance is the Investor Class's return for that period ("Linked Performance"). Linked Performance has not been restated to reflect expenses of the Advisor or Institutional Class and each share's respective returns during that period would be different if such expenses were reflected. Click to enlarge Expense Ratios (% Gross/Net) APFDX APDDX APHDX Semi-Annual Report 31 Mar 2024[1] 1.44/1.402,3 1.42/1.302,3 1.09/ -- Prospectus 30 Sep 20233 1.44/1.412 1.42/1.312 1.09/ -- Click to enlarge [1] Unaudited, annualized for the six-month period. 2Net expenses reflect a contractual expense limitation agreement in effect through 31 Jan 2025. 3See prospectus for further details. Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. Call 800.344.1770 for current to most recent month-end performance. Performance may reflect agreements to limit a Fund's expenses, which would reduce performance if not in effect. Click to enlarge Investing Environment In Q2, data pointed to solid US economic activity and a sturdy labor market while inflation moved slowly toward the Fed's 2% target. Recent indicators showed Q1 gross domestic product (GDP) grew at an annualized rate of 1.6%. In a further sign of economic resilience, the labor market remained more robust than many expected, adding 272,000 new jobs in May versus the 190,000 consensus estimate. The unemployment rate has been at or below 4% for 25 consecutive months for the first time since the 1960s. Inflation has eased over the past year but remains elevated. The consumer price index ('CPI') was flat in May and up 3.3% from a year earlier. The latest core personal consumption expenditures ('PCE') price index reading was 2.6%, the lowest annual rate in three years. While both metrics show progress, they are still well above the Fed's target, and the Federal Open Market Committee ('FOMC') held rates steady in June. Should inflation continue to moderate, we can likely anticipate the FOMC's first rate cut will come later this year. However, the Fed is assessing data one month at a time, and any upward inflation surprise could push rate cuts further down the road. Inflation in Europe has displayed signs of stabilizing and is below levels in the US. The European Central Bank ('ECB') began hiking rates in August 2022, five months later than the Fed. Since then, both central banks have largely raised rates in tandem. However, in June, the ECB diverged from the Fed when it cut rates by 25bps to 3.75%. Global equity market results were mixed. Large caps furthered their advance as mega-cap technology platforms continued to dominate market returns. In June, Nvidia (NVDA) surpassed Microsoft (MSFT) to become the most valuable public company in the world before losing some steam at month's end. The Magnificent Seven (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla) provided a weighted average return of 17.4% in Q2. The Russell 1000® Index, excluding those seven companies, declined 1.2%. Outside of large caps, most parts of the US equity market declined. Both the Russell 2000® and Russell Midcap® Indices fell by 3.3%. Also, while growth sizably outperformed value within large caps, this wasn't the case within mid and small caps. Outside of the US, the MSCI EAFE and MSCI ACWI ex USA Indices posted positive returns in local currency terms. However, the strengthening US dollar continued to be a headwind. Exhibit 1: Index Returns Q2 2024 Russell 1000® Index 3.6% Russell 1000® Growth Index 8.3% Russell 1000® Value Index -2.2% Russell Midcap® Index -3.3% Russell Midcap® Growth Index -3.2% Russell Midcap® Value Index -3.4% Russell 2000® Index -3.3% Russell 2000® Growth Index -2.9% Russell 2000® Value Index -3.6% MSCI EAFE Index 1.4% MSCI AC World Small Mid Cap Index -1.1% MSCI EM Index 6.6% MSCI ACWI 3.6% Click to enlarge Source: Artisan Partners/FactSet/MSCI/Russell. As of 30 Jun 2024. Past performance does not guarantee and is not a reliable indicator of future results. An investment cannot be made directly in an index. Click to enlarge Performance Discussion Our portfolio generated a negative absolute return and underperformed the MSCI AC World Small Mid Index in Q2, but we remain ahead for the YTD period. Underperformance was due to negative security selection, which was concentrated within the industrials and consumer staples sectors. However, this was partially offset by outperformance within information technology, consumer discretionary and communication services. From an allocation perspective, the portfolio benefited from its overweight to information technology, while the overweight to health care and lack of exposure to utilities detracted from relative results. Among our top detractors were Lattice Semiconductor (LSCC), Melrose (OTCPK:MLSPF) and Saia (SAIA). Cyclical pressures continued to hurt Lattice's recent quarterly results, and shares struggled. We believe some of these headwinds are set to ease. Most semiconductor companies have been impacted by their customers destocking elevated inventories in recent quarters, but this seems to be nearing completion. However, other factors, such as macro-related weakness in 5G wireless infrastructure investment, may take longer to turn. Lattice expects to return to growth in the second half of 2024, partly fueled by the company's steady flow of new product launches, which continues to drive market share gains. During the quarter, sentiment toward the stock further weakened due to the departure of Lattice's well-respected CEO. While we were disappointed to see him go, he's taking on an exciting turnaround challenge, and we believe the company's strategy and operations are on very strong footing. We modestly added to the position ahead of what we view as a likely profit cycle acceleration in the year's second half. Melrose is an engine component and airframe structure supplier for both commercial and defense aircraft. We believe the company's engine business is entering a growth and profitability sweet spot, as an aging aircraft fleet should drive meaningful growth in high-margin aftermarket maintenance revenue. Shares were pressured in Q2 as the company faced several cash generation headwinds, such as restructuring costs within its structures business, the exercise of a long-term incentive plan to its former management team and increased capital expenditures to support future growth. We view the thesis as intact, which was confirmed by the company's latest trading update that reported 21% revenue growth within its engine business, driven by aftermarket maintenance. Saia operates in less-than-truckload shipping, a structurally attractive area of transportation that features several solid franchise characteristics supported by real estate assets and network advantages. Given high expectations heading into its earnings release, a narrow miss largely attributable to macro weakness sent shares falling. However, we feel confident going forward for a number of reasons: industry pricing remains rational; the company continues to grow its terminal count (15-20 additions this year); the bankruptcy of key competitor Yellow in August 2023 has left a void in the market; and its valuation remains attractive, in our view. Among our top Q2 contributors were Tyler Technologies (TYL), Twist Bioscience (TWST) and MACOM Technology Solutions (MTSI). Tyler Technologies provides end-to-end information management solutions and services for local government offices. We believe the company will generate durable growth given its defensive end markets, the potential of its cloud subscription transition and the transformative acquisition of NIC (a leading digital government solutions and payments company) that allows for increased cross-sell opportunities. Earnings results were thesis affirming, including 9% growth in overall revenues, 22% in software as a service (SaaS) revenues and 9% in annual recurring revenue. We added to the position. Twist Bioscience is a life sciences company with a proprietary silicon- based platform for writing DNA. Synthetic biology helps biotech companies extend drug discovery and development capabilities, as well as diagnostics companies develop methods of detecting diseases at earlier stages. Other applications include creating disease-resistant food crops and biofuels as alternatives to fossil fuels. Synthetic biology is a large and rapidly growing market, and we believe Twist is currently in the pole position. Shares outperformed after the company reported strong earnings results, including 25% revenue growth and 48% order growth. We added to the position. MACOM Technology Solutions designs and manufactures high- performance semiconductors. The company's relatively new management team is taking steps to accelerate top-line growth and expand margins by addressing smaller, long-duration product cycle markets in which it can provide a differentiated offering, especially in compound semis (those made from two or more elements). Shares have outperformed due to the data center and defense end markets providing steady growth. As a member of the US Department of Defense's trusted foundry program, MACOM is a trusted manufacturer for US military and aerospace applications and offers a comprehensive portfolio of products that support the demanding performance requirements of today's aerospace and defense systems. Meanwhile, we believe the more cyclical areas of the business within industrial and telecommunications are not far from a recovery phase that will provide meaningful earnings upside in the years to come. Portfolio Activity During the quarter, we initiated new Garden SM positions in Liberty Formula One (FWONA), Elastic (ESTC) and Onto Innovation (ONTO). Since acquiring F1 in 2017, Liberty Formula One has expanded the fan base to newer markets (like the US and China) and a younger demographic through efforts like the "Drive to Survive" series on Netflix (NFLX), recasting broadcast agreements and making the sport more competitive (through adding cost caps, instituting standardized parts and changing prize money distribution). As its audience grows, we believe F1 will be able to increase future monetization and profitability through higher broadcasting fees, better sponsorship and hospitality opportunities, and extracting more value out of races from promoters. Recent earnings results were thesis affirming. Sports rights continue to grow in value as streaming services compete for proprietary content, and the one-off costs incurred to launch its Las Vegas race in 2023 should support margin expansion in 2024. Elastic is a software company that specializes in search and data analysis solutions. Elastic's search, observability and security solutions are built on the Elastic Search AI Platform, which thousands of companies use, including more than 50% of the Fortune 500. Customers use the software to gain visibility into their data, reduce mean-time-to-resolution and drive actionable outcomes. We believe the company will benefit from the rise of generative artificial intelligence ('AI'). It provides a differentiated offering due to the combination of a unique pricing model based on consumption, products that handle numerous data types and volumes, and an open architecture environment that offers generative AI development flexibility. Onto Innovation provides process control solutions and inspection systems needed for advanced semiconductor packaging inspection and optical metrology. Wafer-level packaging inspection is a small yet rapidly growing segment within process control tied to increasing chipset sales from AI, edge computing and wearable technology advancements. Optical metrology growth is driven by a transition to 3D architecture, which requires greater numbers of sensitive layers to be measured and tracked. This growth is further supported by gross margin and operating margin expansion, as increasing complexity should drive pricing power. Along with Lattice Semiconductor, Tyler Technologies and Twist Bioscience, notable adds in the quarter included Sea Limited (SE). Sea is a Singapore-based Internet company with primary operations across Southeast Asia and Taiwan. Its integrated platforms include online games, e-commerce and digital payments services. We initiated a position early in 2024 when the company appeared to be out of favor despite reporting strong fundamental results, including top-line growth and improving profitability. Business momentum continued in the quarter as recent earnings results reported growth of 57% in gross merchandise volume, 33% in e-commerce revenue, 12% in active gaming users and 21% in financial services revenue. Importantly, we have been closely monitoring TikTok (which partnered with Tokopedia to relaunch TikTok Shop in Indonesia) as a potential threat but see no signs of rising competitive intensity. Given the thesis- affirming results, we added to the position within the Garden SM. We ended our investment campaigns in Shockwave Medical, Obic (OTCPK:OBIIF) and Roblox (RBLX). Shockwave is a device company specializing in miniaturized lithotripsy (soundwave) technology to break up heavy calcification in arteries. The technology enables safer and more effective cardiovascular disease treatment. Johnson & Johnson (JNJ) announced its acquisition of Shockwave, and we exited the position as shares approached the deal price. Obic is a leading provider of enterprise resource planning software in Japan -- namely, its OBIC7 system, which is used for accounting, human capital management, payroll, marketing, sales and production management. Our thesis was based on a meaningful profit cycle as organizations in Japan move to the cloud and take steps to comply with the recently enacted Japanese Work Style Reform Bill. Recent earnings results have indicated that the profit cycle is maturing, and we decided to sell in favor of higher conviction ideas. Roblox is an online platform where users both play games created by other users and create their own games using Roblox Studio, a robust suite of development and coding tools. While the graphics, user interface and general gameplay appeals more to younger people, our thesis focused on the company's investing heavily to improve its technological capabilities so it could provide experiences that appeal to an older demographic. We saw a potential bull case of Roblox becoming a leading place to create and consume social 3D experiences for the general population. Unfortunately, that view has not materialized as fundamentals have slowed. We exited the position. Notable trims in the quarter included Arista Networks (ANET), Wingstop (WING) and Bentley Systems (BSY). Arista Networks is the market leader in cloud networking equipment used in data centers. Shares have strongly outperformed since the beginning of 2023 as its ethernet options are well positioned to capture market share in AI cloud environments (more scalable and cheaper than InfiniBand, an out-of-the-box solution by Nvidia). We trimmed the position due to our valuation discipline. Similar to Arista Networks, Wingstop has been another strong performer for our portfolio since we initiated a position in Q3 2023. The company is in the early stages of growing its store count domestically and internationally, which we believe is supported by attractive economics for franchisees and growing brand awareness. We continue to be impressed by the company's earnings results, which benefit from strong same-store sales momentum driven by menu innovation, national branding efforts, integration of a second delivery provider (Uber Eats) and an ongoing value-based bundling strategy. We trimmed the position based on our valuation discipline. Bentley Systems is the leading provider of engineering software used to design roads, bridges, tunnels, rail systems and other public works. Construction is one of the economy's least digitized verticals, and our thesis is based on the view that software can drive significant productivity gains within civil engineering projects. We also view the company as well positioned to support infrastructure spending encouraged by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Recent quarterly results showed a bit of growth deceleration, and we decided to trim the position based on valuation and a maturing profit cycle. Stewardship Update One of the central principles of our sustainable investing framework is cultivating a positive direction of travel with our portfolio companies. Directly engaging with companies is a key strategy in this effort, but we believe proxy voting is an equally important and visible communication tool. It allows us to transparently express our views on important topics such as board leadership, executive compensation and shareholder proposals. So far this year, shareholder proposal activity remained steady with 58 proposals, compared to 55 at the same time last year. The distribution between environmental, social and governance proposals was similar, though there was a slight increase in social-related proposals. Notably, eight proposals received majority support this year, while none achieved such backing last year. Six of the majority-supported proposals were governance-related, focusing on the shareholder ownership level required to call a special board of director meeting or to change to a majority vote standard instead of supermajority standards. Recognizing that companies may initially adopt certain governance protections upon entering the public market, we believe they should evolve toward more standard and shareholder-friendly governance practices over time. Our evaluation of these proposals considers a company's overall governance framework, as well as its size and maturity as a public company. The other two shareholder proposals receiving majority support requested disclosure of greenhouse gas emissions as well as political contributions and expenditures. Overall, we supported 11 of 58 shareholder proposals this year, including 5 of the 8 such proposals receiving majority support. Consistent with prior years, we considered the proposal's materiality and specificity as written, each company's direction of travel on the topic and its responsiveness to general shareholder concerns. We look forward to sharing further insights and highlights of our proxy voting activity in our annual stewardship report next year. Perspective One of the major market narratives this year has been the lack of breadth with a small number of disproportionate winners. AI has received tremendous attention and driven extraordinary gains among shares of companies directly exposed to the trend, such as those producing GPUs, networking equipment and other data center infrastructure. Nvidia is the obvious winner. The company entered the year valued at $1.2 trillion, ended the quarter at over $3 trillion and briefly surpassed Microsoft as the most valuable public company in the world. Within our mid-cap universe, companies like Arista Networks and Monolithic Power Systems (MPWR) have done exceptionally well. However, outside of these direct AI beneficiaries, much of the technology sector has been weak this year, including semiconductor companies not exposed to data center growth and software makers. We have seen inventory downcycles in semiconductors before, and they don't last forever. While several holdings are experiencing short- term cyclical headwinds, we are confident that the secular growth drivers (industrial automation, vehicle electrification, clean energy, etc.) enjoyed by companies like Lattice Semiconductor and ON Semiconductor will soon return to the fore. We are remaining patient. Several of our software investments have experienced weak results due to two underlying factors. The first is macroeconomic weakness pressuring small and medium-sized business customers. Second, as it relates to AI, corporate decision-makers have been prioritizing spending toward AI-related projects versus enterprise software solutions. As in semiconductors, we have remained patient with our software holdings. While growth has slowed, these franchises are still compounding at healthy rates. Over the medium term, we believe well-positioned cloud software franchises will leverage generative AI advances to enhance their platforms and increase customer demand. Valuations seem attractive relative to this visible growth opportunity. A similar story about "haves and have-nots" can be told in other sectors too. Take health care, for example. The leaders in GLP-1 obesity therapies, Eli Lilly (LLY) and Novo Nordisk (NVO), have deservedly outperformed dramatically. Looking at the MSCI All Country World Index over the last three years, the health care sector has generated an 11.8% return versus 17.5% for the broader index, despite each company generating greater than 250% returns. If you were to remove them, the sector return drops to -0.4%. Many companies with promising long-term growth opportunities but mixed near-term trends have seen valuations compress. We consider that to be an opportunity for our process to look beyond short-term headwinds and position the portfolio for accelerating future profit cycles. Consistent with examples in this letter, we're staying disciplined on valuation as our narrow winners approach our private market value estimates (such as Arista and Wingstop) while recognizing that further fundamental acceleration for some of these franchises is possible. Meanwhile, we are cautiously adding to strong franchises wrestling with short-term headwinds where valuations are compelling and our medium-to-long-term conviction is high. We are grateful for the ability to look past short-term performance considerations as we seek to consistently execute our process on behalf of our long-term-focused clients. Uncertainty about the market environment remains as investors grapple with geopolitical unrest, important elections across many large global markets, a slowing economy and what this could all mean for inflation and interest rate policy in the quarters ahead. We believe the best way to navigate these uncertainties is to focus on what we do best: identifying high-quality franchises experiencing interesting profit cycles. ARTISAN CANVAS Timely insights and updates from our investment teams and firm leadership Visit www.artisancanvas.com For more information: Visit www.artisanpartners.com | Call 800.344.1770 Click to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Artisan Partners is a global investment management firm that provides a broad range of high value-added investment strategies in growing asset classes to sophisticated clients around the world. Since 1994, the firm has been committed to attracting experienced, disciplined investment professionals to manage client assets. Artisan Partners' autonomous investment teams oversee a diverse range of investment strategies across multiple asset classes. Strategies are offered through various investment vehicles to accommodate a broad range of client mandates. This site is intended for use with US institutional investors which includes corporate and public retirement plans, foundations, endowments, trusts and their consultants.

Fidelity Real Estate Income Fund Q2 2024 Review

U.S. real estate investment trusts returned -0.94% in the second quarter, as measured by the FTSE NAREIT Equity REITs Index, significantly lagging the 4.28% advance of the broad U.S. stock market, according to the S&P 500®index. REITs declined this quarter amid heightened uncertainty about interest rates. A resilient economy, coupled with inflation that remained higher than desired, led investors to believe that rate cuts by the U.S. Federal Reserve were less likely in the near term. Additionally, growth-oriented equities continued to attract the most attention from investors, leaving income-oriented and defensive segments, including REITs, lagging in a growth-focused market. Against this challenging backdrop for REITs, six of nine categories in the FTSE NAREIT gained for the past three months, led by health care (+12%), residential (+7%) and real estate related (+3%). In contrast, hotel (-9%) and industrial/office (-7%) REITs lagged by the widest margin. Meanwhile, real estate corporate bonds gained 0.64%, as measured by the ICE BofA®U.S. Real Estate Index - a market-capitalization-weighted measure of investment-grade corporate debt in the domestic real estate sector. Commercial mortgage-backed securities added 1.07% for the three months, according to the Bloomberg U.S. Commercial Mortgage Backed Securities ex-AAA Index. By comparison, the Bloomberg U.S. Aggregate Bond Index rose 0.07% in the second quarter, after returning -0.78% in the prior three months. For the trailing 12 months, taxable investment-grade bonds rose 2.63%. Outside the Aggregate index, U.S. Treasury Inflation-Protected Securities advanced 0.79%, per Bloomberg, while below-investment-grade segments, such as U.S. high-income corporates (+1.09%) and emerging-markets high-yield securities (+1.17%), showed relative strength in the rising-yield environment. Elsewhere, real estate preferred stocks modestly declined, with the MSCI REIT Preferred Index returning -0.62% in Q2. Looking at the broader equity market, S&P 500®shook off a rough April, thereafter rising steadily due to resilient corporate profits and a frenzy over generative artificial intelligence. Amid this favorable backdrop for higher-risk assets, the index continued its late-2023 momentum and reached midyear just shy of its all-time closing high. Growth stocks led the narrow rally, with only three of 11 sectors topping the broader market for the three months. The backdrop for the global economy and earnings growth remained largely constructive, underpinning fairly low market volatility. The move toward global monetary easing inched forward, although persistent core inflation in the U.S. continued to keep the Fed on hold. Looking ahead, the pace and magnitude of global monetary easing remains uncertain, while near-term risk of a recession in the U.S. appears muted. For the second quarter, the fund's Retail Class shares gained 1.31%, outpacing the 0.11% advance of the Fidelity Real Estate Income Composite Index SM. In Q2, the primary contributor to the fund's performance versus the Composite index came from our preferred stock portfolio. Stock selection helped, as our holdings outperformed the MSCI REIT Preferred Index by 3.33 percentage points. The fund's large underweight in the asset class modestly helped relative performance, given that the preferred index lagged the Composite index for the quarter. Another contributor was the fund's positioning in the real estate common stock segment. Security selection in this category was helpful, with our portfolio of real estate common stock holdings outpacing the FTSE NAREIT index by 1.77 percentage points. The fund's CMBS subportfolio was an additional relative contributor. Security selection in the category helped most, as our CMBS holdings collectively outperformed the Bloomberg CMBS ex-AAA Index by 0.94 percentage points. The fund's substantial overweight in the asset class further contributed to relative performance, considering its outperformance of the Composite index. Also, the fund's cash allocation, which historically has been between 5% and 10% of net assets to allow us to take advantage of attractive buying opportunities when they appear, slightly contributed to the fund's relative performance the past three months. Cash represented 5% of the fund as of midyear. In contrast, results in the fund's real estate bond segment were slightly negative. Given that the category trailed the Composite index, the fund's underweight in real estate bonds hampered relative performance. Security selection in the portfolio sleeve modestly hurt the fund's overall result. We seek to achieve what we consider a reasonable absolute total return by investing in real estate stocks and bonds, aiming for a higher yield and less volatility than what is typically available by investing in REIT common stocks alone. The lower volatility occurs mostly because bonds and preferred stocks are senior in priority to common stocks, so their prices move less when growth disappoints. As always, the past three months, we selected investments primarily based on bottom-up (security-by-security) fundamental research. We rely on our years of experience in commercial real estate investing and the expertise of our research team. Shifts to the fund's asset allocation generally are modest, as we try to avoid big, rapid changes. Instead, we favor an incremental approach because we believe we are better at identifying longer-term trends in the market. When we see unique opportunities, however, we may choose to shift the fund's asset mix more quickly. Through the second quarter, the fund's allocation to investment-grade real estate corporate bonds continued to grow - 23% on June 30, up from 20% as of March 31. We appreciated these securities' generally defensive characteristics - investment-grade issuers tend to have a strong balance sheet and therefore support our goal of minimizing downside capture. So, these securities are presenting us with an opportunity that we see as a double "win" - bonds offering both high income and low credit risk. To grow the fund's investment-grade bond allocation, we used the portfolio's available cash. Our cash allocation reached midyear at 4.5%, down from 5.9% on March 31. To fund our other investment-grade purchases, we trimmed the allocation to CMBS, where the fund's allocation drifted from 25.2% to about 24.6%, and preferred stock, which went from 16.4% to 15.0%. One reason we are comfortable with the fund's higher overall weighting in fixed income - representing about 58% of the portfolio as of June 30, including investment-grade and high-yield real estate corporate bonds and CMBS - is because bondholders are among the earliest to be repaid if issuers encounter financial difficulty. Meanwhile, due to higher short- and long-term interest rates these days, investment-grade bonds now offer compelling yields. Their income has become more competitive with high-yield debt, but generally with lower credit risk. Meanwhile, for some of our higher-yielding but lower-rated fixed-income investments, if we are right about assessing the securities' credit quality, we expect the fund to benefit from spread narrowing while also collecting the coupon. When we invest in CMBS, we favor issuers with underlying property types that offer rising operating income, modest leverage and good ownership, and that provide comparable yields to high-yield real estate corporate bonds. As the second half of 2024 begins, the fund's yield was roughly 6%. We see the fund as defensively positioned, with elevated exposure to property types with a track record of durable cash flow and reduced exposure to economically sensitive, cyclical property types. On the credit side, we believe our emphasis on investment-grade over high-yield bonds provides the fund with reduced credit risk yet still respectable income, given high interest rates. Lastly, we have exposure to CMBS, where, due to our thorough credit research, we see various securities we've determined may be mispriced. In short, due to the fund's healthy yield and defensive positioning, we feel good about the fund's medium- and long-term prospects, regardless of whether the economy slows or continues to do well. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Fidelity Diversified International Fund Q2 2024 Review

For the second quarter, the fund's Retail Class shares gained 0.23%, outpacing the -0.30% result of the benchmark, the MSCI EAFE Index. Non-U.S. equities were roughly flat the past three months. After the MSCI EAFE Index shook off a rough April (-2.52%), it rose steadily in May (+3.94%) due to resilient corporate profits, enthusiasm over generative artificial intelligence and encouraging signs from some central banks that they are likely cut interest rates this year. In June, however, the index slumped again, returning (-1.60%. Within the index, growth stocks (-0.67%) lagged value stocks (+0.17%) in Q2, which can be a headwind for the fund because it tends to have higher earnings growth than the benchmark. However, quality, a factor we also favor, outperformed. By sector, health care (+5%) led the way, followed by financials (+4%). Conversely, the consumer discretionary (-9%) and real estate (-7%) sectors fared worst this quarter. Among regions within the index, the U.K. (+4%) was strongest, whereas Japan (-4%) trailed by the widest margin. The fund's outperformance of the benchmark in Q2 was due to sector positioning and stock selection. An underweight in the lagging consumer discretionary sector contributed to the fund's relative result. In addition, stock selection in information technology and industrials was helpful. From a regional perspective, stock picking and an underweight in Japan materially boosted the fund's relative result, as did the fund's out-of-benchmark exposure to emerging markets. In contrast, stock selection in the financials, consumer staples and materials sectors notably detracted for the quarter. By region, our investment choices in the U.K. and elsewhere in Europe weighed on the fund's relative result. In tech, out-of-benchmark exposure to Taiwan Semiconductor Manufacturing (+28%), one of the fund's largest holdings, was our top individual relative contributor this quarter. The stock was driven by the contract chipmaker's strong position in the AI supply chain and its relationships with several of the world's leading AI developers. Revenue was roughly in line with expectations while gross margins were slightly higher than street expectations. The guidance for 2024 was positive, though expenses in the second half of 2024 should impact margins. We roughly maintained our sizable stake in the company, given our confidence in its business outlook and strong moat. In industrials, an overweight stake in Hitachi (OTCPK:HTHIF) (+23%), a Japan-based industrial conglomerate, meaningfully helped in Q2. The company has been restructuring, shedding non-core businesses and keeping its most successful growth segments. In April, Hitachi reported earnings growth that exceeded analysts' consensus expectation, and investors responded favorably. We increased exposure to the stock in Q2, and it was among the largest holdings and overweights as of midyear. Turning to consumer discretionary, not owning Japan-based automaker and benchmark component Toyota Motor (TM) helped relative performance. The stock returned -18% the past three months, slipping in early May after the company reported mixed financial results for Q1. Revenue surprised to the upside, while earnings were about in line with analysts' expectations, and the company's financial guidance for its next fiscal year was viewed as disappointing. Shares continued to slip in June, as Toyota and four other Japanese automakers were found to have provided incorrect or manipulated data when seeking government certifications on specific models, leading to the suspension of shipments for those models. This pullback followed a period of strong performance for Toyota shares. Looking at individual detractors, an overweight position in Shin-Etsu Chemical (OTCPK:SHECF) (-11%) notably weighed on the fund's relative performance. In late April, the provider of materials and chemicals for semiconductor production and other manufacturing uses reported weaker-than-expected quarterly financial results. Analysts attributed the weak Q1 to slower business in its electronic materials and infrastructure materials units. We trimmed our stake in Shin-Etsu this quarter, but it remained the fund's 11th-largest holding and the fund's ninth-largest overweight versus the benchmark at midyear. In energy, a non-benchmark stake in SLB (-13%) detracted. In mid-April, the provider of oilfield products and services reported flat earnings growth for Q1, due partly to weaker profit margins in its digital & integration and well construction units. In Q2, West Texas Intermediate crude-oil prices - a common driver of energy stocks - fell 12% to a low of about $73 per barrel in June, before rebounding for the remainder of the month and ending down only 2% for the quarter. We significantly reduced the fund's exposure to SLB this quarter because we lost conviction in our thesis. Looking ahead to the remainder of 2024, we feel optimistic about the investment themes in the fund, and the companies we own that could benefit from those themes over the next three-to-five years. These are companies that we believe will grow, based on an increase in corporate spending on AI; heightened global interest in onshoring/nearshoring, a business strategy that involves transferring functions, such as manufacturing to the country where the company is headquartered; the world's transition to greener energy sources; and government spending incentives to build out domestic infrastructure. As a reminder, our approach is to focus on companies with an earnings-growth rate that is durable and higher than peers; a strong competitive moat; a good balance sheet and free cash flow to fund growth; and a capable management team. In Q2, we maintained our preference for companies that had durable growth potential. We favor businesses with quality and durable growth at a reasonable price. With inflation slowing, stability in interest rates may occur. This benefits quality, long-duration assets. As of midyear, the portfolio includes investments in companies that we believe can benefit from growth drivers that are likely to be less sensitive to local economic growth, which is still rather weak in many non-U.S. regions. Information technology, at 18% of fund assets, is the largest sector overweight because we see multiyear demand for most industries, given a growing need for more "compute" power among corporations and individuals. We favor information technology because tech can help businesses become more efficient, save money and reach their clients through a better experience. One thing we've learned is that the adoption of artificial intelligence could be a really big pivot in the business operations of firms across a wide range of industries. AI helps business run more efficiently, and while we don't quite know yet the extent that this capability will help companies, there is a lot of excitement, considering the level of spending and demand for this technology. That said, we maintain exposure in other sectors/themes that we believe are less correlated to the enthusiasm around AI, as the evolution of the technology will probably not always be a smooth trajectory. Valuation versus earnings growth and earnings quality often drives the portfolio's sector weightings. We continue to find value in industrials, the largest sector allocation (about 21% of assets) and a notable overweight. Here, the fund holds companies exposed to multiyear themes, such as energy efficiency. Recently, we have looked to capitalize on attractive opportunities in business services. We do not expect geopolitical tumult (from tariffs, regulation, restrictions, conflict or elections) to fade, so we remain focused on what these issues may mean for companies and industries across the globe. We work to mitigate portfolio sensitivity to exogenous factors that have low predictability. Unfortunately, with increased geopolitical risk and hard-to-predict elections across the world, we try to insulate the portfolio from shock. In this environment, we believe our investment approach, which favors durable earnings, geographic flexibility, solid balance sheets and strong management teams, is important. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Fidelity Equity-Income Fund Q2 2024 Review (Mutual Fund:FEQIX)

For the quarter, the fund's Initial Class shares gained 0.24%, outpacing the -2.25% return of the benchmark, the Russell 3000® Value Index. For the quarter, value shares significantly lagged their growth-oriented counterparts, as the Russell 3000® Growth Index advanced 7.80% in Q2. Investor demand for large-cap growth stocks continued this quarter amid resilient corporate profits, the Federal Reserve's likely pivot to cutting interest rates later this year and a frenzy over generative artificial intelligence. These factors mainly benefited the largest U.S. companies by market capitalization concentrated in the higher-growth information technology and communication services sectors. Meanwhile, value stocks struggled for most of the quarter. In April, the Russell 3000® Value index returned -4.39%, as inflation remained stickier than expected, spurring doubts of a soft landing for the economy. Reversing course, the index rose 3.25% in May. Tech stocks, particularly AI-related names, came back into focus, while the bull market finally began to reflect broader participation. At its June meeting, the Fed bumped up its inflation forecast and reduced its outlook from three cuts to one in 2024. The market followed suit, reducing its rate-cut expectations for the second straight quarter. As a result, the index returned -0.98% for the month. Still, the index was positive on a year-to-date basis, notching a 6.18% gain for the first half of 2024. By sector within the index, utilities was the top-performing group, rising roughly 5% during the past three months. The sector benefited from strong fundamentals, powerful, multiyear secular trends, and the potential for a growth super-cycle driven by utilities' key role in the AI revolution. Consumer staples (+1%) was the only other sector in the index to gain this quarter. Conversely, notable laggards included consumer discretionary (-7%), health care (-5%), communication services (-4%) and energy (-3%), the latter hampered by sluggish oil prices. As always, the fund was positioned with a value-oriented and defensive tilt. The fund's conservatism has historically led to outperformance during times of market volatility and moderate underperformance in "risk-on" market climates. This was largely true for its performance the past three months, as the fund pulled ahead of its benchmark when the index was down in April and June. However, we were pleased the fund also outperformed in May when the index advanced. Positive security selection was the primary contributor to the fund's outperformance in Q2. Stock picking in all but one of the index's market sectors (energy) was a plus. Specifically, our stock choices in information technology and health care provided the biggest boost to relative results. In terms of individual relative contributors, an out-of-index position in Taiwan Semiconductor Manufacturing (TSM) led the way. The stock advanced about 28% the past three months, driven by the contract chipmaker's strong position in the artificial intelligence supply chain and its relationships with several of the world's leading AI developers. With that said, the company's Q1 earnings report, released in mid-April, showed mixed results - while AI-related business drove an increase in profitability, other segments, such as smartphones and automotive, were down. We trimmed our stake in the stock as its valuation became richer, but Taiwan Semiconductor was the fund's No. 12 holding on June 30. Another strong relative contributor from the semiconductor industry was Intel - an index component we did not own because we thought the stock was overvalued. This was a good decision because shares of Intel returned about -30% for the past three months, falling in late April after the maker of PC and server chips announced a disappointing financial forecast for the second quarter. We also avoided cigarette manufacturer Philip Morris International (PM) simply because we preferred stocks where we saw better value potential. But this cost the fund on a relative basis, as the stock climbed 12% the past three months, helped in part by strong Q1 earnings results released in April. It also hurt to overweight Amdocs (DOX) (-12%), a provider of computer systems integration. The firm reported disappointing Q2 earnings and revenue results. Last year at this time, valuation and intra-sector spreads were widening, and we were becoming more opportunistic. Recent uncertainty about inflation subsiding (which fuels rate expectations) has resulted in a re-widening of spreads, driving our focus into higher-spread areas, such as financials, consumer discretionary and industrials. Looking ahead, we will continue to use dispersion (spreads) as a signal for where alpha odds may be rising, then target our stock picking in those areas. We also plan to continue focusing on large price/value disconnects in quality companies to pursue our three main investment goals: investment return, minimizing downside capture, and yield. Longer term, we believe global demographic factors could offset inflation and rising rates, though the market seems to be steadfastly focused on the short-to-medium-term damage. With this in mind, we are keeping a close eye on structural factors like demographics-driven low global growth and accompanying lower rates, while maintaining flexibility when considering how to generate a strong long-term return through a value lens. Overall, we think an investment landscape with an increasingly short-term focus is an enduring competitive advantage for patient investors with a long-term perspective. We did not make any meaningful shifts to the fund's positioning in the second quarter. The largest sector overweight at quarter-end was in consumer staples, where we favor high-quality companies that we think can pass along rising costs. In addition, stocks in this category typically perform well in a recession. Here, some of the fund's key positions include Alimentation Couche-Tard (OTCPK:ANCTF), a Canadian operator of convenience stores with an attractive valuation and underestimated cash flow potential; Canadian grocer Metro, a quality earnings compounder; and BJ's Wholesale Club, a members-only warehouse chain that is executing well at a reasonable valuation. The fund also remains overweight technology, where the AI theme and overall anticipated recovery in cyclical end-markets continued to fuel the sector's performance. Key fund positions included Taiwan Semiconductor, which we believe boasts an exceptional and widening moat; NXP Semiconductors (NXPI), a firm showing good execution in deeply cyclical end markets; and software & services giant Microsoft (MSFT), a lower-risk staple of tech with much more resilient fundamentals than staples. We plan to add to cyclical recovery names here, such as NXP and Samsung (OTCPK:SSNLF), when dispersion widens. In contrast, the fund was underweight financials, although the sector was the fund's biggest absolute weight at quarter end, making up about 20% of assets. Here, notable positions included JPMorgan and Bank of America, two market share gainers that are executing well with reasonably valued stocks; PNC Financial Services Group (PNC), a well-executing regional bank; and Wells Fargo, a turnaround story. We plan to add to safer regional banks, such as M&T Bank, when we see indiscriminate market fear. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.